October 31, 2013 6:46 pm
Ms Merkel’s cautious pragmatism argues for the third as her preferred option. A big bang approach would be the more convincing show of confidence in the euro’s future but, one or more national electorates would probably shoot it down – even assuming that Mr Hollande, for one, was prepared to take such a risk.
Whatever the choice, Berlin believes that the long-term future of the euro depends on France. As I heard many times at a conference hosted by the Ditchley Foundation, Ms Merkel has put a new understanding with Mr Hollande at the top of her list of priorities.
Berlin knows two sides will always take a different view of, say, the respective responsibilities of surplus and deficit nations within the eurozone, but they need to stake out common ground. Far from exulting in French weakness, Ms Merkel sees it as an obstacle to bilateral co-operation.
The maddening thing is that Mr Hollande knows what must be done. Visitors to the Elysée Palace find a president clear-sighted about the imperatives of rebuilding competitiveness and shifting the burden of fiscal adjustment from higher taxes to lower spending.
The problem lies in the gulf between the analysis and the willingness to act. Mr Hollande worries that if he moves too fast, the French will take to the streets. Yet by moving too slowly he is driving them toward the xenophobic extreme represented Marine Le Pen’s National Front.
Politics saved the monetary union. The hedge funds missed the sheer force of political will behind the project. Rising populism across the continent, however, threatens an opposing dynamic; a public mood that comes to blame the euro for the wrenching economic and social adjustments demanded of Europe by globalisation. The single currency is safe for the time being. It would be a mistake to say the game is over.