A post-elections reality check in the Eurozone
The headline in Monday's Sueddeutsche Zeitung, one of Germany's most influential newspapers, couldn't have said it better in looking at the realistic alternatives Europeans have for reining in spending to protect their common currency.
Wishful thinking prevailed at the polls in France, Greece and Italy on Sunday, when voters were asked to choose between leaders urging them to bear up against the pain of austerity measures if they want to keep a strong common currency or put off the belt-tightening for another day.
The national elections in France and Greece, and to a lesser degree local votes in major Italian cities, were the first public referendums on the constraints imposed by the European Union on its 17 member states that share the euro currency. Citizens of nations long used to sipping at the public trough gave decisive "no" votes to the cuts in government jobs and services, but the alternatives peddled by anti-austerity politicians have been few and far from promising.
Asian and European markets pulled back after French Socialist Francois Hollande defeated President Nicolas Sarkozy. The vote in effect dissolves the partnership between Sarkozy and German Chancellor Angela Merkel in supporting the public spending cuts to control Eurozone debt and keep the common currency strong against the U.S. dollar and Japanese yen. The euro dropped to a three-month low against the dollar Monday, to $1.2972, though regained ground before markets closed.
In Greece, where voters punished established parties for supporting spending cuts in exchange for bailouts, the conservative New Democracy Party and an array of small opposition forces benefited. But with only 19% of the vote, New Democracy leader Antonis Samaras, who has expressed commitment to Greece staying in the Eurozone, has already given up on the chances of forging a coalition with contentious parties that agree on little except what they didn't like.
Merkel congratulated Hollande and invited him to Berlin to discuss his economic objectives but warned that the austerity measures defined for France to keep the euro on track are "not up for grabs."
Europe can't afford to return to growth-oriented spending "on the back of debt," she told the news conference. She was alluding to a fundamental difference between Sarkozy's adherence to reduced spending and government employee benefits and Hollande's campaign-trail calls for stimulating industry and services with fresh investments.
Analysts suggest the electoral defeats of politicians going along with Germany's staunch austerity notions will put pressure on the new leaders to indulge in more stimulus spending. However, the funds available for Europe-wide growth investments are paltry and the individual member countries risk missing their deficit-reduction targets if they spend their own money on job-creating projects.
As Daniela Schwarzer of the German Institute for International and Security Affairs told The Times' special correspondent Aaron Wiener in Berlin, Germany and France recognize that they have to work together to resolve the debt crisis and refrain from public disagreements that could undermine confidence in their plans.
“If Germany and France appear divided," she noted, "the credibility of promises to rebuild the Eurozone is harmed.”
On the eve of the elections, Hugo Brady of the Center for European Reform told The Times' London bureau chief Henry Chu that what voters decide could be destabilizing in the short run but that leaders have to be responsive to the demands of the people.
"I have faith in democracy to do the right thing at the end of the day," Brady said of the prospects for a new course in tackling Europe's debt crisis.
The people have spoken. Now let's see whether their chosen leaders come up with anything more than a deferral of the pain.
--Carol J. Williams in Los Angeles
Photo: Brokers at the Frankfurt Stock Exchange in Frankfurt am Main, Germany, on Monday. European shares and the euro fell in the wake of weekend elections that have resulted in renewed investor concerns about the region's commitment to fiscal austerity to combat its long-running debt crisis. Credit: Frank Rumpenhorst / EPA.