As everyone is now focusing on the French Presidential elections between Sarkozy and Hollande as the main contenders, the eurozone awaits the out come. No doubt Merkel and Berlin are concerned as Hollande as made no secret of his plans to reverse any French austerity measures to France’s economy. As a socialist his economic philosophy is simple, the state spends its way out of slow growth and a sickly economy. I think there will certainly be more friction between Paris and Berlin if Hollande wins the election, as both will be travelling in opposite directions on eurozone economic policy.Merkel wants stricter controls on public spending, and inroads into reducing state debt; Hollande wants to increase public spending which will no doubt increase France’s state debt which as already one of Europe’s biggest debt ratio’s to national GDP.
Sarkozy as had a topsy turvy kind of economic policy. When he 1st entered office he embraced certain opening up of France’s protected markets, and seemed alittle more pro free enterprise, telling the French they had to work harder and retire later. That all changed after the banking crisis with Sarkozy doing a Houdini U turn and recoiling back into French protectionist values, preaching against the free market ‘Anglo Saxon’ model of trade. As the Americans say he did a complete ‘flip-flop’.
Who ever is elected France as serve structural problems. Just by employing ever more teachers and civil servants will not solve France’s economic problems. State spending in France is one of the highest in Europe, and just doing the old habit of increasing taxes will not cut it any more. Merkel knows this well as the tensions between the two dominant EU countries are bound to increase due to two very different economic views. I am sure the southern eurozone countries in the Mediterranean, such as Greece are secretly hoping for a Hollande election victory to reverse the hard austerity programmes being enforced by Berlin and the ECB.
The French philosophy of controlling a state command economy is not only redundant, but bankrupt. France, just like the rest of the eurozone cannot spend their way out of Europe’s deep structural economic problems. Big public sectors have to be brought under control, and reformed. Less rigid employment regulation to hire and fire employee’s, also reforming of public sector pensions as to be addressed. Not pleasant medicine to swallow, but all the same as to be tacked if the eurozone is to really grow and openly compete with the USA and Asia in the years to come.