We’ll always have Paris

The virulence of the debt crisis and instability that has gripped the euro in recent months has now shifted the centre of attention to Spain and Italy. Following the interventions in Greece, Portugal and Ireland, the question on everyone’s lips is how far or for how long the governments of Mariano Rajoy and Mario Monti will withstand the pressure – and what would happen if in the end Spain and/or Italy had to submit to full intervention.

The urgency and the difficulty in saving Spain and Italy have helped to highlight the importance of Germany and have singled out once again Angela Merkel as the person who has the power in her hands to sort out the complex knot of Europe.

Just as the crisis has forced citizens to learn the rudiments of economics needed to grasp and appreciate what is happening and the solutions that are being taken on board, Germany’s dominant position in this crisis has made it imperative to delve into the depths of Germany’s political system, economy and public opinion.

And so in the European crisis we have learned to pay attention to the German regional elections, the verdicts of its Constitutional Court, the process of parliamentary ratification of the European agreements, the weakness or strength of the Liberal or Bavarian partners in the CDU government, the positions of the President of the German Central Bank and the fine-tuning with respect to Eurobonds that the opposition Social Democrats may bring in if they get into government.

Political union now back on table

Germany, we have learned, is a highly complex political system in which power is widely shared among a number of strong and independent institutions that severely restrict Angela Merkel’s ability to act.

Meanwhile, in France, the opposite holds true. The tremendous concentration of power that the Constitution of the Fifth Republic gives the President, combined with the compulsive hyperactivism of Sarkozy, allows all the attention to focus on the role of President and greatly simplifies analyses.

However, as began to be glimpsed during the presidential campaign, behind the cue-taking of Sarkozy – he who always seemed to be following Merkel’s lead – seethed a highly complex France troubled by a series of existential questions: doubts about its national identity, doubts about its economic model, doubts about European integration and doubts about globalisation.

These doubts have severely limited the French centre-right’s room for manoeuvre, forcing it to mimic the tenets of the nationalist and xenophobic right represented by the National Front under Marine Le Pen.

These doubts also hamper – and how! – the centre-left, forced to co-exist with a left that has a phobia about globalisation and that feels increasingly alienated by European integration, which it perceives as globalisation in sheep's clothing out to destroy the interventionist and welfare state that is one of the hallmarks of France.

Unexpectedly, as it was thought that the 2005 constitutional referendum had finally buried it, political union now has thudded back down on the table of the French left. Hollande is facing this challenge from an unenviable position.

Make Europe more efficient

On the one hand, almost two out of three voters who sent him to the Elysee voted against the European Constitution in 2005. Furthermore, the difficult situation of public finances in France, highlighted this week by the Court of Auditors, makes it inevitable that discussions about the next phase of economic and political union will coincide with a battery of significant budget cuts that will run up against a wall of political and social rejection.

To the extent that French public opinion sees steps towards European integration as a new shrinkage in the state's freedom to make leftist policies and interprets the political union as a new turn of the screws on its social model, it will respond strongly to what it sees not as a political union but as a writing of the German economic model and of the austerity policies in Europe into the French constitution.

As happened in the nineties, when preparations were being made for economic and monetary union, and over the past decade, when the European Constitution was being debated, the left will have to decide whether the political and economic union with Germany contributes to preserving and even reinvigorating its economic and social model – or rather consolidates its decline and makes it irreversible.

Hollande's challenge therefore is to make Europe more efficient, which requires greater integration and therefore the transfer of sovereignty – but which in turn will respect and not stifle the diversity of economic and social models. He won’t have it easy, because the France of today is much weaker than Germany.

Economy

France takes a different path

French president François Hollande is challenging the orthodoxy that fiscal responsibility must involve spending cuts rather than tax increases, writes an approving The Irish Times leader—

The harsh refrain that “there is no alternative to austerity” has given way to a welcome general consensus that austerity measures alone will kill off growth and to a somewhat more understanding approach to the plight of the heavily indebted.

Hollande’s new government is seeking to balance the books this year with some €7.2 billion in extra taxes, mainly targeting the wealthiest households and biggest companies. Measures include —

... lowering France’s wealth tax threshold and adding a once-off levy on those with net wealth of more than €1.3 million; a tightening of inheritance tax; higher taxes on banks, petrol companies and dividends; increased employer social contributions; and a doubling of the financial transactions tax to 0.2 per cent. In the autumn he [François Hollande] will launch his programme of far-reaching tax reforms, including a 75 per cent tax on income above €1 million. He has also slapped new charges on absentee holiday homeowners – there are 200,000 from the UK alone – much to the distress of the British authorities.