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Striking a French euro tinderbox

Oliver Marc Hartwich | Business Spectator | 14 March 2012

Democracy would be such a great idea if it were not regularly complicated by elections. The shenanigans ahead of France’s presidential elections are a case in point.

Internationally the outcome of France’s election is crucial for the future of the euro and the way of European integration. That’s no small beer, to be sure. Domestically, however, the campaign will be decided by which candidate proves the better populist. Will it be President Nicolas Sarkozy, who is about to reinvent his image for the umpteenth time? Or will it be socialist candidate François Hollande, the bête noire of Europe’s conservative leaders?

No matter who wins, European politics will look different after the election in April and a potential run-off election in May. What happens in Paris has repercussions well beyond French borders and could alter the character of the European Union. It might even speed up the journey towards a final Greek and a possibly Portuguese default.

Previously, national elections in European countries were national affairs. The pan-European crisis has changed this. Not only that, European questions play an important role in France’s presidential election. French answers to these questions will shape Europe’s response to the continent’s many crises.

Over the past years, Europe has effectively been led by German Chancellor Angela Merkel and French President Nicolas Sarkozy. Though different in style in character, both belong to the same family of broadly conservative parties. Despite initial irritations on both sides, they came to be seen as the ‘Merkozy’ engine driving Europe’s crisis management.

After his election in 2007, Sarkozy soon lost his initial popularity to the public’s irritation with his lifestyle, political affairs, and controversial pension reform plans. His close cooperation with Merkel did not win him friends in France either. His opponents regularly accused him of caving in to German demands for fiscal discipline without sufficiently standing up for French interests.

Sarkozy certainly fuelled his opponents’ impression of being Merkel’s junior partner when he recently appeared side by side with her in a long TV interview broadcast on both French and German TV. It was a clear signal that Merkel supported his election campaign.

Then, last week, German newsmagazine Der Spiegel reported that Merkel and other conservative leaders had agreed not to meet with Sarkozy’s presidential rival Hollande during the election campaign. Though Merkel denied such an anti-Hollande pact, her spokesman also confirmed that she had no plans of meeting him anyway.

All of this made Sarkozy look, if not like Merkel’s poodle, at least her protégé. It backfired so badly on him that had it been Merkel’s plan to bolster Hollande’s electoral chances she could not have done a better job of it.

In these circumstances, both Sarkozy and Hollande now find themselves in a similar situation. They have to demonstrate to the electorate that they are ‘more French’ than the other, that they want to be no one else’s president but of the French people. This has turned the campaign into a populist beauty contest with strong nationalist undertones on both sides.

Hollande clearly enjoys his reputation as the socialist Frenchman shunned by Europe’s conservative establishment. Instead of defending unpopular austerity policies, he is promising more state-funded goodies.

Lowering the pension age to 60 years for some workers, 60,000 new jobs in education, and delaying the reduction of the budget deficit: his agenda sounds like a typical left-wing program from the pre-crisis era.

To round off Hollande’s left-wing populism he wants to impose a 75 per cent tax rate on incomes exceeding €1 million. To the horror of Europe’s heads of government, he has also announced his wish to renegotiate the fiscal compact, introduce euro bonds and impose European stimulus programs.

Sarkozy is countering Hollande’s initiatives with his own right-wing populism. He threatens to pull France out of the Schengen Treaty, which guarantees freedom of movement within many European countries. At a mass rally of his party’s supporters, he abandoned the EU’s in-principle commitment to free trade in favour of guarantees for European (read: French) companies in public procurement procedures. The great European Sarkozy, as he wanted to be seen next to Madame Merkel, now looks like the avenger of French national interests – and if that sounds anti-European then c’est la vie.

The French voters are effectively being presented with a choice between French left-wing and French right-wing populism. If opinion polls are anything to go by, they are opting for Hollande’s social-democratic revival. In two-candidate preferred polls, Hollande has been consistently ahead of Sarkozy by 10 to 20 percentage points.

The consequences of a continued Sarkozy presidency would see a more protectionist European Union, but the implications of a now likely Hollande presidency will be far more severe. Additional bailout packages for Greece would be virtually impossible; instead of continuing with prescribed austerity programmes for the European periphery, Hollande could soon become the leader of a new Southern European anti-austerity coalition.

A confrontation with Germany and its Northern European allies would be unavoidable under President Hollande. As a result, Germany’s willingness to continue supporting countries like Greece and Portugal would dwindle.

Either Sarkozy or Hollande will win France’s presidential elections, but the project of European cooperation and integration will surely lose. And the political uncertainty dominating the coming months will exacerbate the euro crisis.

Oliver Marc Hartwich is a Research Fellow at The Centre for Independent Studies.