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The Key to the Cyprus Story: French Decline


Gideon Rachman had a good column yesterday pointing out that the French have been notably absent as any kind of force in Europe ever since Francois Hollande took up the reins of power in Paris:

From Jean Monnet to Jacques Delors, the French have always prided themselves on providing the intellectual leadership for the European project.

The notion that Europe should be driven forward by a Franco-German partnership was crucial to French thinking—and was reflected in former president Nicolas Sarkozy’s determination to form a close partnership with Ms Merkel. The idea that Europe was being run by “Merkozy” was always a bit of an illusion—but at least it signalled a French determination to be at the centre of the action.

Under President François Hollande, however, any notion that France is playing an equal role to Germany has disappeared. Over Cyprus, even the Finns seemed to weigh more heavily in the debate than the French. Part of the problem is that Mr Hollande has let it be known that he disapproves of Germany’s insistence of austerity but he has not proposed a coherent alternative. He has not placed himself at the head of an alliance of southern nations that could push back the Germans. But nor has he established a good working relationship with Ms Merkel. French officials also no longer play the crucial role they once did at the heart of Europe. Following the retirement of Jean-Claude Trichet, a Frenchman no longer heads the ECB. Michel Barnier, the French EU internal market commissioner, is a bit of a lightweight.

France has failed to articulate a policy or build a coalition. The result is that within the EU there is no alternative to German agenda-setting. This is paralleled by growing Russian weakness, especially as evidenced by the latest events in Cyprus. The two powers who since late 19th century have served to balance Germany in Europe are both in eclipse.

Other than Germany, Turkey is only power on mainland Europe that is gaining clout. These are interesting times.

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  • Andrew Allison

    There’s another aspect to France and the Cyprus situation: the French economy is also in decline, and Cyprus is a message to the rest of the eurozone that future bail-outs will require bail-ins.

  • ojfl

    I believe also the problem is the divergence of policies between France and Germany. Recall that during the election of president Hollande, he was opposed to the vague promises of fiscal austerity promoted by then president Sarkozy and supported by Chancellor Merkel. In that sense an alliance Franco-German got diminished right then and there. The further slide of the French economy has proven austerity was indeed the only solution to the French problem and acknowledging that, after significant victories in the legislative elections, would weaken president Hollande and probably weaken his legislative support, also causing further slide in the polls.

  • Atanu Maulik

    To tie nations like Germany and Greece and Netherlands and Cyprus with a single currency must rank as one of the stupidest ideas to come out of the human mind. Perhaps the EUrocrats had too much faith in Marxist philosophy, that by altering material conditions they can alter human consciousness. Give the Germans and Greeks a common currency and they will start acting similarly. How stupid !

  • Corlyss Drinkard

    Correct me if I’m wrong, but hasn’t an unrestrained Germany always been a condition that bodes ill for the rest of Europe?

  • Andrew Allison

    Cyprus doesn’t need to pass a law. The laws regarding the chain of losses are well-established: uninsured creditors are uninsured. Period.

    • Corlyss Drinkard

      A taking is a taking. Why stop with little? Why not take all the uninsured money in the Russians’ accounts? Why, that’s even better than borrowing from the ECB at low interest rates.

  • Mark Michael

    Surprisingly for the Jim Lehrer NewsHour last night, they ran a long segment on Ireland and how they were slowly coming back from the Great Recession of 2008. They instituted real austerity 4 years ago and saw their GDP drop 3% in 2008, 7% in 2009, less than 1% in 2010, grew 1.4% in 2011, and 0.7% in 2012. The unemployment rate remains very high: 14.2%. Ray Suarez was the reporter. He noted that the government can once again borrow money on the private markets at reasonable rates; think he said 4.1%. Ditto credit-worthy private borrowers. Ten’s of thousands of new small businesses have started, often people laid off from a regular job – start a restaurant, pub, niche manufacturing company. Lots of Internet-related startups (Ireland has a highly educated workforce). The CIA World Factbook says Ireland’s prime interest rate is 3.1% today.

    The tourist industry is coming back because Ireland is a lot cheaper than it was during the boom times. Wages were forced to drop, since Ireland could not devalue the euro. Prices for ordinary goods and services dropped a lot also.

    Ireland had a huge bubble in its banking sector and its real estate market. Stupidly, their politicians paid off the banking creditors euro-for-euro. Made them whole – no haircut – put the entire burden on the Irish taxpayer. They have been slowly paying it down. They ran a trade surplus of $113.6B – $63.1B = $50.5B in 2012, which reduced the country’s net foreign debt by that $50.5B amount. (These #’s from the CIA World Factbook.)

    Ireland’s per capita GDP has dropped to $41,700 (2012 estimate in PPP), which is still several $2,000 higher than Germany’s $39,000.

    Ireland’s public debt is still too high: 118% of GDP. Its inflation rate was 1.3% for 2012. Also, the worst problem is that 14.2% unemployment rate, although I suspect that’s overstated – given the small startups, self-employed activity the NewsHour described as going on.

    Someone needs to tell a Paul Krugman to check out Ireland and how they did the opposite he tells countries in Severe Recessions to do – and appear to be succeeding, albeit slowly.

  • Mata_Moros

    Turkey doesn’t belong to Europe. It is not a European country.

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