Monday, October 31, 2011

France décidera du sort de l'Euro

France will decide the fate of the Euro.

That's my opinion, you ask? No. Instead that's part of the headline to a TIME magazine article that examines the crucial role France will play in determining how the Euro and financial crisis plays out.
Ultimately, however, the question of the Euro and the European financial system comes to rest with France. The whole process of containing the problems of weak European economies depends on there being enough financially strong countries to pay for the bailouts. And equally important, there has to be a widely held belief in common European interests. France is essential to both those things.
It’s increasingly clear that Europe is developing into two economic blocs with diverging destinies. On one side is Germany and some smaller countries – such as the Netherlands, Austria and Finland – that have similarly strong economies. On the other side are Greece, Spain, Italy and all the other countries facing severe debt problems.
The wealthier countries see less and less reason to keep paying for bailouts. Most have growing right-wing movements opposed to subsidizing the poorer countries in the Euro currency zone. And even among more mainstream political parties in Germany, Austria, the Netherlands and Finland, there is skepticism about the Euro. What keeps them engaged is the perception that there is a broad European constituency for the common currency. And that broad constituency is largely built around the partnership between France and Germany on which the entire European Union was founded.
The BBC adds that French president Nicolas Sarkozy is one of many people tamping down the excitement that immediately followed last week's bailout deal for Greece. 
Perhaps the most revealing insight into the challenge that Europe faces was provided by President Sarkozy in a TV interview when he got back to France. He spoke candidly, telling the French people that "we have entered a new world". France, he implied, had to become more like Germany.
"We spend too much and we must work more," he said. The French social model could only be defended if tough measures were adopted. I recall the strikes and disruption when the French retirement age was increased from 60 to 62. Will France be ready for this new world?
But perhaps the most profound legacy of the summit is that the EU is dividing into two camps: those in the eurozone and those outside.
The Greek bailout and the larger issue of the Euro (not to mention the European Union) will be front and center when the G-20 leaders gather later this week in Cannes. Business Week takes a look at how those conversations might go.
The G-20 leaders convene Nov. 3-4 in Cannes, France, a week after euro-area authorities pledged to magnify the capacity of their rescue fund to 1 trillion euros ($1.4 trillion) and look beyond their borders for help in doing so as they combat the debt turmoil posing the biggest threat to global growth.
While the help of China and cooperation of the International Monetary Fund were immediately sought, pledges of hard cash are proving hard to come by as G-20 members press for more details of the plan. In an indication Europe may eventually prevail, Brazilian and Russian officials said their governments may be willing to provide assistance.
“Unless European leaders can flesh out some of these details very quickly, it’s hard to see the rest of the G-20 coming on board with very great enthusiasm,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former IMF economist.
And let's not forget that looming over whatever policies President Sarkozy advances is the recognition that he is trailing in the polls and facing a tough uphill battle as he seeks re-election in just six months. 

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