If the results of the latest elections are any indication, Europeans will elect anyone from communists to fascists if they promise to fight German Chancellor Angela Merkel over the financial austerity measures she has imposed on the eurozone.
French Socialist François Hollande rode to victory on a wave of popular dissatisfaction on Sunday, May 6, defeating President Nicolas Sarkozy, a close ally of Merkel. “You did not resist Germany,” Hollande declared in a televised debate late last week, accusing Sarkozy of acquiescing to German economic measures that require France and other EU states to make deep, painful cuts to their social welfare spending.
Hollande now joins the collapsed Dutch government of Prime Minister Mark Rutte — which unraveled in late April over resistance to economic belt-tightening — to deliver a one-two austerity punch to Germany. Compounding Merkel’s political isolation on Sunday, May 6, voters knocked her Christian Democratic Union (CDU) out of a governing coalition in a regional election. Although the CDU secured the most votes in the northern state of Schleswig-Holstein, it was the party’s worst electoral performance since 1950.
In a shot across the Rhine, Hollande declared in his victory speech in the small southwestern French town of Tulle that “austerity is no longer inevitable.”
Yet for all his bluster, Hollande likely won’t be able to impose radical change on Europe’s core economics. The powerful German economy has kept the euro afloat as Greece, Italy, Spain, and other countries have drawn perilously close to the brink of collapse. Its manufacturing and exports businesses remain the engine of European prosperity.
Under the fiscal treaty Merkel advanced this year, EU member states are required to ensure that their “deficits do not exceed 3 percent of their gross domestic product at market prices” and must maintain strict limits on government debt. The treaty goes to great lengths — with corrective measures and potential legal action against member states — to prevent a repeat of a Greek-style economic meltdown.
On Sunday, however, Hollande promised a “new start for Europe,” spelling a possible wholesale revision of the fiscal treaty. All this has investors (and speculators) worried: His victory on Sunday, along with the weekend’s anti-austerity Greek election results, prompted the euro to sink to an eye-popping almost-five-month low of $1.2988.
All this helps explain Gideon Rachman’s recent Financial Timescommentary, “No Alternative to Austerity,” in which he notes that France is “a country where the state already consumes 56 per cent of gross domestic product, which has not balanced a budget since the mid-1970s, and which has some of the highest taxes in the world.”
Of course, this is all anathema to the rule-abiding Germans. In 2003, Merkel’s predecessor, Social Democratic Chancellor Gerhard Schröder, introduced his Agenda 2010, a sort of watered-down version of U.S. President Bill Clinton’s “welfare-to-work” program, which cut taxes, unemployment benefits, and other social welfare programs. The reforms brought German unemployment down from over 5 million in 2005 to 2.8 million today. Merkel has since led the way in imposing similar discipline across the eurozone, and Sarkozy has helped her.
“Europe must be pulled out of paralysis,” declared Sarkozy on his first presidential visit to Berlin after his May election victory nearly five years ago, urging the German leader to join him and “take the initiative.” Merkel reciprocated, culminating in a political alliance to retain EU unity and eventually impose robust fiscal discipline on the 17 eurozone countries. The unlikely and oft-quoted fusion of these two leaders — Merkozy — advanced an ambitious plan to prevent the European Union from fragmenting.