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Eurozone Government

France Faces German Opposition

Written by Swagato Chakravorty
Posted May 20, 2013

Overturning centuries of popular parody, it seems the French may after all assume the role of savior – at least as far as Europe is concerned.

euro collapseRecently, French President Francois Hollande urged the creation of a Eurozone government, comprised of the 17 nations that presently use the euro, within the next two years.

The government would convene every month and would be lead by a full-time president, reports CNNMoney, which quotes from the President’s recent news conference:

"This economic government will debate the main political and economic decisions to be taken by the member states, harmonize tax policy, start the convergence of social policies from the top and launch a battle against tax fraud.”

Let’s recall that Hollande was elected at a time of intense internal strife within France, as the austerity and stimulus camps waged war against each other. Hollande led on promises of economic growth, but as France’s fortunes have declined in the months since, so has his popularity.

Just recently, France officially joined the “countries in recession” club, with a GDP drop of 0.2 percent over the first three months of 2013.

Eurozone Strife

Meanwhile, the pervasive European financial malaise continues. Various European nations and states have pledged coordination when it comes to making budgetary policies and try to claw back lost economic ground. The European Central Bank is to supervise nearly the entire Eurozone banking industry come 2014.

However, various nations have also not been able to uphold their commitments to cutting down on borrowing – France is guilty here, as well. The major question now appears to be the creation of some authority that can operate across the EU with regard to shutting down failing banks while also creating a shared fund that can serve as a buffer for costs.

With Germany’s elections due this September, it’s unclear how enthusiastic the nation may be for such wide-ranging reforms. And without Germany – which has, for some time now, been the EU’s growth engine – it’s safe to say nothing much is going to get done. If anything, Germany might even be against it; after all, they’ve done the most to bail out, one after the other, Greece, Ireland, Portugal, and Cyprus.

According to Reuters, Hollande’s proposal would pave the way for a pan-European economic government endowed with its own budget, rights to borrow, and a clearly coded tax system. Evidently, Hollande is fighting back against a growing tide of criticism both at home and across the EU at large, reasserting his leadership role.

However, Germany will likely prove a formidable opponent, as the nation’s government remains opposed to any sort of mutualized debt across the EU nations. 17 nations currently use the euro; 10 others do not. Were the Eurozone to form its own economic government, there are legitimate concerns that it could worsen divisions between nations.

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Franco-German Divides

Hollande remains optimistic about the future of his proposed Eurozone government, however, indicating that major EU-wide economic and political decisions could be weighed by this government, which would consequently ease frictions across states. Hollande has also issued a call for a major decade-long EU-wide investment plan for the digital sector as well as green energy reforms and public transport options.

It all sounds very promising, but as of now it’s really just some impressive talk. The EU is in no position whatsoever to even consider these big plans – the real economic data is simply too dismal.

Moreover, as Deutsche Welle reports, the recent numbers indicate that the Eurozone’s January-March contraction was the sixth consecutive shrinkage, with 9 out of 17 member nations currently in a state of recession. And Hollande’s desire for a more closely-integrated Eurozone is almost certainly going to be opposed by the more individualist Angela Merkel.

Merkel is not a fan of the idea of socializing debt, given her firmly austerity-driven movements. However, her most recent statements suggest that there is, at least, a working relationship between the two.

At the same time, as this choice quote indicates, Merkel is well aware of how much Europe (at least at the moment) needs Germany:

"When I'm accused of selfishness, then I can answer very well that of course I am not selfish, but I know that in the long term Germany will only do well when the whole of Europe does well. And Europe also doesn't do well when Germany is doing really badly."

The quote was in response to a memo that leaked, apparently from Hollande’s party; the memo indicts Merkel for “selfish intransigence.”

 

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