Germans are wondering if they’re the schmucks of Europe. Yeah, probably.
The latest bailout has been a coup for France in that they’ve essentially taken European political leadership away from the economically more powerful Germany.
France is in charge.
I think that the politics have shifted dramatically in the last few days, and that the euro is looking less German and more French, even if Angela Merkel has won some late victories on process by insisting that national governments should not give open-ended loan guarantees to the European Commission to play with. I think that the EU has developed a much stronger external narrative, telling markets that they should treat the eurozone as a single whole, which is strong and solvent, and not try to pick off weaker members because they will get their fingers burned.
But, and I think this is still a big but, the political narrative inside the eurozone is still lagging way behind. If the markets outside are being told to treat the eurozone as a single fortress, defended by unlimited budgetary firepower from the rich members of the club, voters in places like Germany, the Netherlands or Finland are absolutely not being told that they now inhabit a single economic entity, in which big chunks of the budget are pooled.
The Germans and co are still insisting that the point of constructing a vast bazooka is to avoid ever having to fire it. In other words, whether or not you think the leaders are stumbling backwards into a fiscal transfer union, that is certainly not their purported intention: the intention is for none of this money ever to be needed.
That’s how the bailout is being sold… but imagine if the bazooka is fired.
The French, according to The Economist, dream of a ‘permanent euro bailout instrument’. If the bazooka is fired, we believe it would massively increase the concentration of E.U. power relative to the governments of individual nations. Anyone who dreams of a more centralized Europe must love that angle.