Over at the estimable (but paywall protected) Financial Times, the admirable Gideon Rachman has a good column on the meaning of the French election for France and for Europe. Every serious investor and every serious student of international relations should take a look, because Gideon makes a persuasive case that whoever wins the French election is going to take a much harder line on European questions — and that the new hard line won’t go down well with Germany.
It’s hard at this point to work out all the scenarios, and there will be a significant difference between a Hollande presidency and a second Sarkozy term, but the potential for European gridlock even as markets tank is very real. Europe is divided into two camps at the moment: the “bailers” and the “jailers”. The bailers want the ECB (and ultimately Germany) to bail out the PIIGS and near-PIIGS (like Belgium and France); the jailers want to impose strict austerity until the big spenders reform.
Europe’s core problem is that the jailers aren’t strong enough to impose savage austerity, and the bailers can’t make the jailers bail them out. In the old, pre-euro EU, this was a much smaller problem. The currencies of the weaker economies could gradually and gently depreciate as they inflated their unsustainable debts away. But with only one currency, Europe can no longer have a live-and-let-live monetary policy. Either the bailers or the jailers must rule — but neither can, and so the mud-wrestling, the name-calling and the policy gridlock continue.
It isn’t pretty, but that is what we have. The most logical approach would be for Germany and a handful of others to exit the euro, but for the moment ideas like that are taboo.
The French election and the fall of the Dutch government illustrate the growing political weakness of the jailer camp. And as countries like Italy, Greece and Spain sniff Germany’s growing political isolation and weakness, they will throw off the mask of sober obedience they have been wearing in hopes of cajoling a few billion euros of relief from the Germans. A President Hollande would be anything but isolated in Europe if he takes on the tightwads in Berlin.
Hollande’s campaign has realized something important: France feels trapped. As Rachman points out, the economic chaos and horrors to the Latin South inspire deep fear in France. The “Anglo-Saxon” capitalists to the west are emerging resilient from the crisis and perhaps more threatening than ever. And across the Rhine stands a Germany that has decisively and definitively replaced France as the senior partner in Europe. Rachman could have added that beyond the Mediterranean lie, first, the sources of North African immigration that France can neither assimilate or reject. Beyond them are the former colonies where Chinese and Indian influence will increasingly limit French power — and challenge the economic basis of the Francosphere as Africans increasingly learn English to communicate with Chinese and Indian investors. And beyond Africa lies Asia, where the new world powers see France, at most, as a source of good handbags.
This is a world in which France can survive and even flourish economically (a lot of people in China and India do, in fact, like those handbags very much and there are some very cagey and skillful French companies), but there is not much room in it for what Charles de Gaulle called “une certaine idée de la France.” France would be more like a greater Singapore: an entrepôt, a source of design and taste, the home perhaps of a few wise heads but it would no longer be even the shadow of a great power. It might well be less of a factor in world politics than Turkey.
A President of France may know in his head that this future or something like it is coming, but he also knows that he cannot be seen to acquiesce in it. Since 1815, French heads of state have been, among other things, confectioners of illusions. Hungry for the glory and primacy that were lost at Waterloo, the French want their kings, premiers, presidents and emperors to project a convincing image of French grandeur and importance even if they can’t deliver the real thing.
Sarkozy’s recipe for the projection of French grandeur was to combine a glittery personal lifestyle (yachts, supermodels, fancy food) with activism in the Middle East, lots of speeches about big global problems, and a determination to preserve the appearance that France and Germany were equal partners in setting the European agenda.
It didn’t work. The French found his glitzy personal style offensive — more Donald Trump than Louis XIV. His Middle Eastern activism has left them mostly unmoved. His frenetic global speech making looked pointless, as little ever came of his pronouncements. And his strategy for looking like Angela Merkel’s partner was to tie himself to German austerity programs and a fiscal pact that the French do not like. Sarkozy I think hoped to double cross her in the end, and might well have managed (or still manage it if re-elected), but his Germany policy looked supine to many voters.
Hollande now senses another opening: he cannot do much about the rise of Asia or the decline of Europe, but he can rally much of Europe to his side in a challenge to German austerity. By forcing Merkel to renegotiate the fiscal pact, he can reassert France’s role in Europe. He can force the old enemy back across the Rhine, defend “the Europe of growth” from the austerity caucus, and place France at the head of a coalition in Europe.
While he won’t be able to extract much actual German money from Berlin in this way, he will probably get something, and he will have once again identified France with a cause greater than itself. For a French President, this is not a bad start.
It is too soon to count the wily Sarkozy out. The French on balance still prefer the right to the left, and the re-emergence of a harder left in this race has reminded many thrifty and practical French bourgeois types that socialist dreamers can wreak a lot of economic damage in a very short time. The two right wing candidates (Sarkozy and Le Pen) did better than the two from the left (Melenchon and Hollande); the balance went to the centrist Bayrou.
But whether it’s Hollande or Sarkozy, the next French president will take good care to look a bit less like Petain and a bit more like Clemenceau: less collaboration with the Hun, and more resistance.
For Europe — and for investors worldwide — that will mean interesting times.