Guess who’s coming to dinner!

May 9, 2012 at 1:14 pm Leave a comment

European Council president Herman van Rompuy has arranged a summit dinner for EU leaders on May 23. For François Hollande the Brussels feast will be a first opportunity to brief all his colleagues on France’s new approach to the eurozone crisis and how he sees a return to growth in Europe. His message will be relatively well received.

The fascinating question is who will fill Greece’s dining chair and how deep will the Greek crisis have become in two weeks’ time.

Writing on Europe Day, May 9, the prospects are not encouraging. Suddenly the prospects of Greece quitting the euro look much more plausible. While neither PASOK nor the New Democracy party have been able to form a coalition, Alexis Tsipras, leader of the Left Coalition and leader of the second biggest party, demands that any coalition partner must join him in renouncing the bailout package and tearing up the fiscal treaty.

His argument is that Greece can retain the euro without the austerity, because any attempt to expel the country from the eurozone would bring the whole edifice tumbling down. In other words, you need us more than we need you, so you will have to concede.

New Democracy leader Samaras is reported as saying that “Mr. Tsipras asked me to put my signature to the destruction of Greece. I will not do this”. PASOK’s leader Venizelos, who negotiated the latest €130bn package, is equally clear. He wants a pro-Europe unity government.

The most likely prospect seems to be that Lucas Papademos will continue as caretaker prime minister until new elections can be held, possibly on June 17. The question is whether enough Greek voters, faced with the new reality, will revert so soon to traditional loyalties. If the answer is no, then it could be back to the drachma.

The Greek crisis has set François Hollande, by contrast, plumb in the mainstream of eurozone thinking. Commission president Barroso, Mario Monti in Italy, the ECB’s Mario Draghi and Christine Lagarde at the IMF have been quick to argue that Hollande’s priorities are their priorities. More spending by EU structural funds, emphasis on research and innovation, and a bigger role for the European Investment Bank are part of the mix, but deficit reduction remains a major preoccupation.

Until French parliamentary elections on June 10 and 17 Hollande will continue to focus on the growth agenda. He will push for a “growth pact” to be linked with the fiscal treaty but has told the Irish that there is no reason to delay Ireland’s May 31 referendum on the grounds that it might be changed. (Greece, Portugal and Slovenia have already ratified).

Michel Sapin, possible finance minister and a veteran of the Mitterand years, has already said that Eurobonds are not an answer to the crisis (which avoids one contentious issue with Germany), but a financial transaction tax will be high on the French agenda, although Hollande makes reference to the UK’s hostility to the idea in a wide-ranging interview. It’s worth noting, too, that he wishes to move away from the Franco-German “duopoly” in European policy, while retaining close links with Merkel.

There is indeed a widespread assumption that Hollande’s victory and the Greek results mark the end of Angela Merkel’s predominance in European politics. I doubt it. Germany clearly remains fundamental to any resolution of the eurozone crisis and remains the motor of Europe’s economy.

Just to rub home the facts: German exports were up nearly one per cent in March to an all time record of €91.8 billion and imports were up by 1.2 per cent to €78.1 billion – also a record. But on a more sobering note for the new French President French labour costs are now higher than those of Germany. Economic competitiveness will inevitably need to become part of his agenda.

Michael

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