France, Germany at odds as euro continues to tumble
France and Germany disagree over the best way to handle Europe's sovereign debt crisis and their collapsing common currency, the euro. Some analysts think it could strain European unity.
France is at terrific odds with Germany over the eurozone's debt woes, a sign that what started as a Greek debt crisis is becoming a crisis of European unity, with unforeseen social and political as well as economic downsides.Skip to next paragraph
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The euro has lost 14 percent of its value against the dollar since the start of the year and is hovering near a four-year low on concerns that the mounds of government debt in a number of eurozone countries amounts to a ticking time bomb. The euro has continued to slide despite the creation of a $1 trillion reserve bailout fund and a $140 billion bailout for Greece earlier this month. The unveiling of austerity plans in Italy, Greece, Spain, Portugal, and Ireland has also done little to reassure investors.
European solidarity is in danger – though some analysts say that unity on the continent has always been achieved by hammering out differences in periods of crisis.
“We’ve seen a fiscal, an economic, and a social crisis...and a political crisis inside nations could be next," says Éloi Laurent of the French Economic Observatory in Paris. "We’ve seen it in Greece, and we already have a political crisis at the European level, which is a union in shambles."
US Treasury Secretary Timothy Geithner travels to Berlin tomorrow for consultations in the wake of a new set of German restrictions on market speculation. German Chancellor Angela Merkel yesterday announced a ban on naked short selling of certain kinds of debt. A naked short sale is when an investor promises to deliver an asset at its current market price to another investor, effectively "selling" something he doesn't own in the hope that the price will decline quickly, allowing him to cover his trade at a profit. Merkel's ban infuriated European finance chiefs for its unilateral and non-consultative nature.
Last week Merkel called the crisis Europe’s biggest test in 50 years, which irritated France. President Nicolas Sarkozy even threatened to withdraw from the eurozone, in what was seen as a rhetorical flourish underscoring the depth of French feeling and disagreement with Berlin.
“Merkel is sabotaging [rescue efforts] in order to prove to her domestic audience that everyone should follow Germany’s economic lead,” says Mr. Laurent. “Well, every country can’t be Germany. This is a beggar-thy-neighbor policy. Merkel is saying ‘I have no interest in the Europeans, I am only interested in my own government.' "
What has become a bitter test for Europe started this winter when the Greek government admitted its deficits were far greater than it had been reporting. The country almost certainly would have defaulted on debts that came due this month if not for the bailout it eventually received. Eurozone states, at the behest of Germany and the IMF, demanded steep spending cuts from Greece as the price of its bailout.