The simmering crisis in Europe erupted dramatically this week – in France, the second largest economy in the Eurozone. The Minister of Finance who disagreed with the established austerity policy was sacked.
The results are in: The politics of austerity, deficit reduction and tax increases do not work in the short run, at least. Consequently, the politicians are panicking and are running for cover.
In fact, a peculiar “Civil war” has begun in Europe: Everyone against Germany. The politicians in power know that Chancellor Angela Merkel’s policy strengthens the right-wing elements in their countries – in France and Greece, for example – and opens the door to the opposition parties.
The “revolt” against Merkel was begun by the young Prime Minister of Italy. But what happened in France the other day is much more serious.
There, the Minister of Finance asked the President to enact a “radical change” in policy. To abandon austerity. Moreover, he launched a personal attack against Merkel, always a risky action against a Chancellor with long memory.
“We need to remove the tons,” that are crushing them said Minister Arnaud Montebourg. He said Merkel “is caught in the trap of austerity which she imposed across Europe.”
On Aug. 24, the French Prime Minister Manuel Valls demanded that President François Hollande dismiss the Minister of Finance. “Either him or me,” he said. President Hollande did not dare go against the Germans.
The conflict within the Government of France is very likely to have parallels elsewhere. It’ s turning into every man for himself.
The logic that is developing with politicians is that if they disagree or abandon austerity now they might survive politically and return to active politics to fight another day.
The problems, however, are not the same in all EU countries. There is no “one size fits all” solution. That is why the future of the euro is so uncertain.
As regards Greece, the continuation of the same policy of deficit reduction and tax increases is obviously not working. Had Greece implemented the structural changes when it could, especially in the days of George Papandreou, things would have been different.
Is there another way? No. Every road passes through the structural reforms.