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The big loser today was Angela Merkel.In France, her primary ally Nicolas Sarkozy went down to defeat against a candidate whose main priority is pushing back against the fiscal compact, and promoting a more activist, printy ECB.
In Greece, the middle-ground austerity parties had a disastrous day in the polls, as fringe parties surged. Already, the head of the New Democracy party (which garnered more seats than anyone else) is talking about renegotiating the bailout terms, according to the Associated Press.
So the question is: What does Merkel do now?
It seems like there are pretty much just two oppositions. One is to embrace the tide and acknowledge the reality. Merkelism has not worked anywhere. The embrace of austerity as the primary means of fighting the debt crisis has failed. In all the countries that have gone for it (Greece, Portugal, Spain, etc.) deficits are worse, government borrowing costs are higher, and the economy has gone to the dogs. Reflationary growth policies are what’s called for, and what the people outside of Germany want. If Merkel can find a way to bend to this, and somehow bring her fellow Germans along, then this weekend’s result will prove to have been a major, positive turning point.
The other option is for Merkel to dig in, continue to insist on austerity as the only crisis-fighting approach, while only making the faintest moves towards a “growth strategy.” If that’s her approach, then watch out because the Franco-Germany alliance will really be shot, and the new weak Greek government won’t be able to go for it. Also, the European economy will continue to head into the tank.
The jig is up, Angela, it’s your choice now.
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