Only a Merkel miracle can save the euro

Spare a charitable thought this morning for Germany’s Iron Chancellor, Angela Merkel, as she ponders the fresh dilemma of not what would happen if the Eurozone mosaic fractures into mangled shards, but what will be the upshot when it does, at it surely must.

Because, with the election of Francois Hollande, the political and financial tectonic plates of the EU have shifted irreversibly. And, whether or not France’s new President has the guts to tell Merkel, that paragon of fiscal virtue, where to shove her austerity pill is immaterial.

If the action goes according to script, Hollande will reverse much of what his small, but perfectly formed, martinet predecessor, Nicholas Sarkozy, agreed in the so-called ‘Merkozy fiskalpakt’. He’ll tax the French rich until their pips squeak, spend like a Parisian whore on a credit-card binge, and allow his country-folk to put their feet up in happy retirement far earlier.

Even Sarkozy couldn’t stem France’s penchant for bureaucratic self-indulgence (i.e. Q: How many Frenchmen does it take to change a light bulb? A: Three – one to change it, the other two to hold the ladder). And his successor isn’t even interested in trying to.

So, whether or not the wobbly Hollande – not for nothing nicknamed Monsieur Blancmange – actually squares the impossible circle of borrowing his way out of ‘le crisis’ doesn’t matter. It’s the threat his Left-wing tax-and-spend manifesto carries that will put the fear of the almighty up the Germans.

MERKEL: Euro dreams going up in smoke

With her own crown perched precarious – and a general election looming next year – the last thing Merkel wants is increased uncertainty over the deservedly, much-maligned euro.

Wedged between a rock and a hard place, if the dopey currency weakens further, her centre-Right coalition will be dumped by the electorate, who were promised a replacement for the Deutschmark that was at least as strong.

And, though the Germans have benefitted most from the euro, if it slips further – and the market will shorten the odds on that almost immediately (on May 16 the French treasury will seek to raise a billion euros and the takers will demand a high-interest return on their cash) – Germany risks inflation and all the collateral woes that brings.

Meanwhile, there’s the anarchistic sideshow of Greece, where the mainstream parties got the drumming they expected in Sunday’s election; Spain’s unilateral decision to ease austerity; and the rudderless Dutch facing new polls, after the ruling coalition split over the self-same malaise – or its bitter remedy of turning the fiscal screws tighter – that’s choking the life out of the Club Med states.

So, despite the notion that the Eurozone is locked in a polygamous marriage from which there is supposedly no divorce, there is and every finance ministry in the EU will be working out an exit strategy if they’ve not already done so by now. Even Britain, which had the nous to retain the £, has one, as the Treasury admits.

Merkel’s problem, though, has an added dimension. If, as seems entirely possible, the euro is jettisoned or revamped – the southern nations going their own ways and the fiscally-prudent north launching a new, super-mark – Germany faces the prospect of having a currency that’s so hard it will make their high-tech wares unaffordable in the rest of the world.

If Mutti (mother in German, as her fans call her) Merkel can find a route out of this morass, she can plat fog.


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