As patriotic Britons, the authors of this blog would not normally be unduly upset by the impending self-destruction of the French economy, followed by the collapse of the euro. We are actually rather fond of France, and have met a number of agreeable French people, but a thousand years of rivalry leave their mark.
Yet the world has changed. Markets have become more integrated, and confidence is still shaky after 2008. Global recovery is a very fragile structure, jerry built out of any bits and pieces that were found lying around, and it sometimes seems that it would take no more than a sneeze to bring the whole thing crashing down.
Europe sneezed twice over the weekend. First the Greek people voted against the parties which approved of a technocratic government to implement the austerity programme demanded by the EU if Greece is to remain in the euro. This should have surprised no one. The fundamental weakness of technocratic governments is that for austerity to work in a democracy, the voters must accept responsibility for it, but they have no inducement to so that when the government and people have been separated.
Then came the election to the French Presidency of a man who apparently has no business experience whatsoever – it certainly looks that way from the financial illiteracy of his programme.
Could this be the beginning of the end of the deals put together by Angela Merkel, the forceful German Chancellor, to save the euro? Are Franco-Hellenic demands for renegotiation going to prompt other reluctant signatories to band together with them? If so, the German fiscal discipline that has been the only thing giving the euro any credibility will be gone. Then the euro will either become a joke currency – which the Germans will not tolerate – or the eurozone will have to split in some way.
Many may not see this as a bad thing. It has been obvious for some time that the euro in its current form is unsustainable. Few would object to an orderly restructuring – but that is not on the table.
The problem is that another forced restructuring of the euro, probably with all the errors that came with previous forced restructurings, will undermine the already fragile confidence of the world markets. Investors will worry about what they have already tied up in the eurozone and be reluctant to commit more. Business will worry about the reduction in European purchasing power. These worried investors and businesses are American and British and Chinese as well as European. It is ironic for someone who has never been convinced by the European project to have to write these words but, for the moment at least, the global recovery may depend on the preservation of the euro.
That said, the euro is clearly unsustainable and is proving to be a recessionary instrument itself. We have previously referred to it as The Devil’s Currency. Sooner or later it will have to be fundamentally restructured or abandoned altogether. We would normally argue for ‘the sooner’ as the longer these things are left the more pain is ultimately suffered by ordinary people, or in our case ordinary businesses.
However, our concern now is that the fragile global recovery, if indeed one is under way, seems to depend on the euro staying in one piece for the time being. But, let there be no mistake, the euro has done enough damage already. Once a recovery is on more solid footing that should be the end of this ill conceived project once and for all.