Hollande and Merkozy have no time to get to know each other

Not for all, but for a great deal, of the time since General de Gaulle brought in France’s Fifth Republic, the European Union and its forerunners have been dominated by the personal relationship of the French president and the German chancellor. With the EU having expanded from six to 27 member states, there has been much discussion as to whether this tandem would be superseded. But this has not happened other than for temporary intervals. The institutions of the EU to which their effective founder, Jean Monnet, gave so much emphasis, are also important, but if the franco-German relationship is not working, the institutions have been unable to do much more than tread water, preventing disintegration of the EU but not able to tackle major problems. This is the situation today. While previous French presidents and German chancellors have always built strong personal relationships over a period of time, President Hollande and Chancellor Merkel have no time.

They have to act urgently on two fronts. They must restore confidence that the euro zone as a whole can find a path out of its debt-recession quagmire at a time when there are fears that a weakening economy and failing banks will undermine Spain’s ability to restore control over its public sector finances, and when the situation in Italy which has an even higher public sector debt than Spain is only slightly better. The policy levers available, such as enhancing the capital and role of the European Investment Bank, more effective use of EU structural funds and project bonds, are limited and certainly no single measure is on its own going to transform the situation, but that is all the more reason why the levers available should be harnessed with urgency.

Even more urgent is how to tackle the political, social and economic crisis in Greece. At the general election on May 6th, the Greek electorate did not give a parliamentary majority to the traditional parties, Pasok and New Democracy, which, albeit with equivocations and extreme reluctance, had in principle accepted the principle that in order to continue to receive financial support in the form of loans to the Greek state and liquidity to Greek banks, they had to put into effect deficit reduction and other reform measures insisted upon by Greece’s creditors as represented by the troika of the European Commission, European Central Bank and IMF. Both in opinion polls and in the parties they voted for at the election, the majority of the Greek electorate voted against the austerity measures but in favour of staying in the euro. This is despite the fact that EU leaders, including Chancellor Merkel and the outgoing French president, Nicolas Sarkozy had insisted in October 2011 that, if a referendum were held as proposed by the then Pasok leader, George Papandreou, a vote against austerity would in effect be a vote against continued membership of the euro. President Hollande and Chancellor Merkel must now decide if this is a position they will hold to ruthlessly confronted with the high possibility that Greece will reject the conditions of the financial rescue again, and decisively, in a second general election in June.

A willingness openly to negotiate an easing of conditions does not seem an option. The troika, backed by France and Germany, firmly told the Pasok leader, Evangelos Venizelos, and ND leader, Antonis Samaras, that the conditions could not be substantially altered. If they had been more flexible, Pasok and ND would not have had to go into the April election on such an unpopular policy platform. To change stance now or after the June election in order to appease parties competing with Pasok and ND, would therefore be a betrayal of Mr Venizelos and Mr Samaras and would also indicate that populist politicians, in any country in need of financial assistance, could alter the terms of such assistance by simply demanding better terms.  Therefore, it will almost certainly have to be made clear that the new financial rescue programme agreed in March would be null and void if a Greece’s parliament after the June election, rejects the conditions. The stance is not something that Germany could agree to change if President Hollande were to request it.

However, there remains a question as to whether to threaten Greece with a withdrawal of any support linked to staying in the euro if the election again produces an anti-austerity result. The unpredictable sequence of events which would follow a refusal of further loans and an enforced default would be very likely to lead to a degree of economic and social breakdown against which the only possible palliative would be a decision by the national authorities to re-introduce a national currency. But no country can actually be expelled from the euro so it is questionable whether to threaten a country with being cut off from the euro would be proper and to do so might also precipitate crises of confidence in continued euro membership in other vulnerable countries.

What can and should be done is that the new emphasis on growth measures that President Hollande is insisting be added to the fiscal treaty be applied with urgency to Greece. There are substantial unused funds available for Greece in the 2007-13 EU budget. They should be used for immediate high-profile projects such as youth training programmes and investments in export or import-substituting food or other manufacturing facilities and such plans should be given high publicity so as to counter the despair which has spread and is particularly affecting young people. The situation in Greece is already one of social and economic disaster with shops and tavernas closing all over the country and those that remain open nearly empty, while tenants with little or no income are being evicted with nowhere else to go and dependence is increasing on soup kitchens and other charitable measures not associated with Europe since shortly after the Second World War.

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