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Berlin to Paris: F for Effort

Francois Hollande’s government has flip-flopped on its commitment to keep its budget deficit within the 3 percent-of-GDP cap mandated by the EU, the FT reports. It will “probably stand at 3.7 per cent in 2013 even though we will try to make it lower,” Hollande announced while visiting Dijon. The German Bundesbank was none too pleased, and its president, Jens Weidmann, gravely wagged his finger at France:

“One can always discuss the details—structural consolidation versus nominal targets—but at the end of the day, nominal targets are a lot more visible and if the impression were to be created that these rules were being treated very laxly the first time they are implemented, that would be a bad signal for the whole currency union.”

Much like the recent Dutch fudge on the deficit, the real concern is not about the deficits themselves but the effects such behavior will have on the EU as a whole. The optics are ugly. While this will contribute to a deepening division between France and Germany, it also emphasizes the shaky state of European economic policy as a whole. Germany clearly can’t impose its model on the rest of Europe, but neither can debtor countries rely on Germany for indefinite, no-strings bailouts. Something’s got to give.

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