Rachman assumes as a premise that the fiscal pact can't be renegotiated. But even US Treasury says the fiscal pact can be renegotiated; even US Treasury says that it is stupid to have legally binding arrangements that prevent governments which can borrow at low interest rates from doing so to spend during a recession.
Rachman claims it would be unthinkable for Hollande to "isolate" Merkel, but according to NPR this morning - you know, that radical left-wing rag - Merkel is already isolated. On Tue, May 8, 2012 at 9:41 AM, Marv Gandall <[email protected]> wrote: > The Greek crisis will fast expose Hollande > By Gideon Rachman > Financial Times > May 7 2012 > > In rural France on Sunday night, the newly-elected French president took to > the stage and announced that he would lead the battle in Europe against > austerity. On the other side of the continent, Greek voters were calling his > bluff. By overwhelmingly opting for parties that want to either repudiate or > renegotiate Greece’s bailout deal, they have handed François Hollande a > painful dilemma. Will he stand with the Greek people against austerity? Or > will he stand with the German government and the International Monetary Fund, > in insisting that the Greek bailout cannot be renegotiated? > > The choice Mr Hollande makes will be fateful, for France and Europe. > Potentially, France’s new president could position himself as the head of > Europe’s southern rebels. There is no doubt that the Spanish and Italian > governments – even if nominally from different political families – have been > cheering on the French socialist. They, like the Greeks, desperately want to > see a challenge to German austerity orthodoxy. > > Yet any French effort to isolate Germany within the EU would be a historic > shift in postwar French foreign policy – which has been built around the idea > that the “Franco-German couple” should run the EU together. Allying France > with the European south would also damage France’s self-image, as one of the > stronger economies in Europe. The perception of France in financial markets > could also worsen. Most damaging of all, an open split between France and > Germany would cause Europe-wide problems, opening up a seismic fault in the > foundations of the EU and its single currency. > > As a result, most analysts assume Mr Hollande will settle for a few > face-saving gestures from Berlin, allowing him to say that he has changed the > direction of the EU debate in favour of“growth”. Even before he was elected, > experts in Berlin and Paris were sketching out the likely contours of an > agreement. > > A putative Hollande-Merkel deal would go something like this. Mr Hollande, as > he has already hinted, would modify his demand to renegotiate the new EU > fiscal pact – the deal that makes a move towards balanced budgets legally > binding. Instead Germany would agree to a vaguely-worded new growth pact, > which could sit alongside the fiscal pact. In similar vein, it would reject > Mr Hollande’s demand for Eurobonds – the issuance of common EU debt. But it > would probably agree to EU-backed “project bonds”, financing infrastructure > projects. A boost to lending by the European Investment Bank would also be > agreed. This would be a typical EU, Franco-German fudge that would allow all > participants to retreat with honour – leaving the outside world largely > unaffected and slightly baffled. > > The new eruption of the Greek political volcano, however, greatly complicates > this picture. The Greek problem is now so acute that it cannot be “fixed” > through a few cleverly-drafted clauses, added to an EU treaty. It demands > real, crunchy and dangerous decisions. Specifically, will Greece press ahead > and make further billions of euros worth of budget cuts, within months, as > demanded by its most recent bailout deal? If Greece refuses to do this, then > the IMF has made clear that it will not authorise the release of the next > tranche in aid to Greece. That, in turn, would mean that the Greek government > simply ran out of money. Managed, if painful, cuts to pensions and wages > would then be replaced by something much more chaotic and dangerous. The > forced exit of Greece from the euro would also become much more likely. > > The raw numbers from the Greek elections suggest that this stark choice might > soon have to be confronted. The two mainstream, pro-bailout parties, New > Democracy and Pasok, only garnered about one-third of votes. They will > struggle to form a coalition government – and Greece may soon face more > elections. > > Moreover, even Antonis Samaras, the leader of New Democracy and still the > likeliest next prime minister, would argue for changes to the Greek deal. Mr > Samaras knows the fact that both centrist parties are now associated with a > deeply unpopular austerity package, imposed by foreigners, is dangerous – it > makes the nationalist and far-left extremists the only political gainers. > > Specifically, Mr Samaras thinks that Greek businesses desperately need lower > taxes. But he has received no encouragement in this argument from Angela > Merkel – with whom he has a dreadful relationship. If he makes it as prime > minister, Mr Samaras would position himself as a reasonable rebel, arguing > against counterproductive German austerity policies. That makes him sound > like a natural ally of Mr Hollande. > > In reality, faced with a choice between supporting Greece and supporting > Germany, the French are almost certain to go with the Germans. Yet such a > choice would expose Mr Hollande’s anti-austerity rhetoric as vacuous. A few > gestures towards “project bonds” will be as nothing, compared with the vision > of France standing with the IMF and Germany to impose deep cuts on Greece, > while the country’s economy shrinks and unemployment soars. > > The combination of political chaos in Greece and an inflexible IMF suggests > that Greece will hit a new crisis this summer. At this point, the EU will > face a momentous choice. Does it step in with yet more aid for Greece, even > as the IMF backs off? Or does it refuse to help Greece – accepting all the > political and economic risks that come with such a choice? Faced with such a > crisis, Mr Hollande’s vague and uplifting rhetoric about saving Europe from > austerity is irrelevant. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l -- Robert Naiman Policy Director Just Foreign Policy www.justforeignpolicy.org [email protected] _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
