Leading article: France and Germany don't have all the cards

Share
Related Topics

All eyes will be on Berlin this afternoon, as Angela Merkel and François Hollande meet for the first time with the ostensible goal of thrashing out their differences over the solution to the eurozone's problems. The meeting is billed as a showdown between the fundamentally opposing world views of austerity and growth, the outcome of which might either save the single currency or hasten its demise. The reality, however, is both more prosaic and more alarming.

For all the rhetoric about his leading an anti-austerity backlash, Mr Hollande's divergences from Ms Merkel are largely a matter of emphasis. The German Chancellor favours structural measures, such as labour market reforms, to boost Europe's flagging growth; her newly elected French counterpart speaks warmly of EU-wide "project bonds" to finance stimulatory infrastructure investment. In fact, Europe needs both. And the most likely outcome of today's meeting is a diplomatic fudge.

Meanwhile, both leaders continue to dodge the reality of what they must do. For all the anti-austerity rhetoric, Mr Hollande has only tweaked his predecessor's deficit-reduction targets. But he has shied away from mentioning any of the reforms that will be necessary to meet them. Similarly, the German Chancellor remains implacably committed to austerity as the only solution, although her Finance Minister has, at least, hinted that Germany could tolerate the higher inflation needed to boost growth across the eurozone.

So pronounced a lack of leadership at the heart of Europe is troubling enough. Worse still, the future of the single currency is rapidly being decided elsewhere. At the general election on 6 May, Greek voters took the opportunity to register their disgust at the political class that, by its squandering and pandering, led Greece into a debt crisis that has slashed the economy by nearly a fifth and shows little sign of abating. The result was so splintered that it has proved impossible for any party to form a government and another election, in four weeks' time, is increasingly likely. What is not certain is whether the result will be any different. And with siren voices from the political extremes promising an end to biting austerity, it is not certain that Greek voters are aware of the magnitude of their choice.

The majority of Greeks still want to stay in the eurozone. Some politicians – notably the leader of the leftist Syriza party catapulted to second place in last week's vote – claim it is possible for Greece to both reject austerity (for which, read default on its debts) and yet remain within the single currency. It is not. For flusher euro countries to continue to bankroll neighbours who renege on their promises would only replace Greece's political instability with ructions elsewhere – in Germany, for example.

Then there are the full implications of a Greek exit to be considered. The best-case scenario is a return to the drachma, rapid depreciation, and a relatively swift increase in competitiveness – albeit accompanied by a massive, overnight devaluation of assets, a crash in living standards as the price of euro-denominated imports soars, and the likely collapse of the banking system. Less optimistically, there is also the very real danger of undisciplined money-printing and hyperinflation, with all that entails.

The prognosis outside Greece is little rosier. More sanguine commentators suggest that the boosted bailout fund and the ECB could, between them, protect the other vulnerable eurozone economies such as Portugal, Spain and even Italy. But that is far from certain – as yesterday's spiralling borrowing costs in Spain attest. And even if they can, the massive losses in Greece would still ricochet around the European – and world – financial systems, punching yet another hole in banks' balance sheets, paralysing lending, and choking off already-faltering economic growth. The potential repercussions can hardly be overstated, rippling right out to Barack Obama's chances of re-election.

There is real suffering in Greece. And the assumption that it is better off remaining in the euro is no longer as secure as it was. The decision, rightly, rests with the Greek people. But it is not only their own future which is in their hands.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Cancer Research UK: Corporate Partnerships Volunteer Events Coordinator – London

Voluntary: Cancer Research UK: We’re looking for someone to support our award ...

Ashdown Group: Head of IT - Hertfordshire - £90,000

£70000 - £90000 per annum + bonus + car allowance + benefits: Ashdown Group: H...

Ashdown Group: Application Support Analyst - SQL Server, T-SQL

£28000 - £32000 per annum + Excellent benefits: Ashdown Group: Application Sup...

Ashdown Group: Systems Analyst / Data Analyst (SQL Server, T-SQL, data)

£28000 - £32000 per annum + Excellent benefits: Ashdown Group: Systems Analyst...

Day In a Page

Read Next
 

Errors & Omissions: Outgunned by a lack of military knowledge

Guy Keleny
Ukip leader Nigel Farage in Tiny Tim’s tea shop while canvassing in Rochester this week  

General Election 2015: What on earth happened to Ukip?

Matthew Norman
Major medical journal Lancet under attack for 'extremist hate propaganda' over its coverage of the Israeli-Palestinian conflict

Lancet accused of 'anti-Israel hate propaganda' over coverage of Gaza conflict

Threat to free speech as publishers of renowned medical journal are accused of inciting hatred and violence
General Election 2015: Tories and Lib Dems throw their star names west to grab votes

All noisy on the Lib Dems' western front

The party has deployed its big guns in Cornwall to save its seats there. Simon Usborne heads to the heart of the battle
How Etsy became a crafty little earner: The online market has been floated for £1.2bn, but can craft and capitalism coexist?

How Etsy became a crafty little earner

The online market has been floated for £1.2bn, but can craft and capitalism coexist?
Guy Ritchie is the latest filmmaker to tackle King Arthur - one of our most versatile heroes

King Arthur is inspiring Guy Ritchie

Raluca Radulescu explains why his many permutations - from folk hero to chick-lit hunk - never cease to fascinate
Apple Watch: Will it live up to expectations for the man or woman on the street?

Apple Watch: Will it live up to expectations?

The Apple Watch has apparently sold millions even before its launch tomorrow
Don't fear the artichoke: it's a good cook's staple, with more choice than you'd think

Don't fear the artichoke

Artichokes are scary - they've got spikes and hairy bits, and British cooks tend to give them a wide berth. But they're an essential and delicious part of Italian cuisine
11 best men's socks

11 best men's socks

Make a statement with your accessories, starting from the bottom up
Paul Scholes column: Eden Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo

Paul Scholes column

Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo
Frank Warren: Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal

Frank Warren's Ringside

Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal
London Marathon 2015: Kenya's brothers in arms Wilson Kipsang and Dennis Kimetto ready to take on world

Kenya's brothers in arms take on world

Last year Wilson Kipsang had his marathon record taken off him by training partner and friend Dennis Kimetto. They talk about facing off in the London Marathon
Natalie Bennett interview: I've lost track of the last time I saw my Dad but it's not because I refuse to fly

Natalie Bennett interview: I've lost track of the last time I saw my Dad

Green leader prefers to stay clear of her 'painful' family memories but is more open about 'utterly unreasonable' personal attacks
Syria conflict: Khorasan return with a fresh influx of fighters awaiting the order to start 'shooting the birds'

Khorasan is back in Syria

America said these al-Qaeda militants were bombed out of the country last year - but Kim Sengupta hears a different story
General Election 2015: Is William Cash the man to woo Warwickshire North for Ukip?

On the campaign trail with Ukip

Is William Cash the man to woo Warwickshire North?
Four rival Robin Hood movies get Hollywood go-head - and Friar Tuck will become a superhero

Expect a rush on men's tights

Studios line up four Robin Hoods productions
Peter Kay's Car Share: BBC show is the comedian's first TV sitcom in a decade

In the driving seat: Peter Kay

Car Share is the comedian's first TV sitcom in a decade. The programme's co-creator Paul Coleman reveals the challenges of getting the show on the road