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.
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The episode caused markets to more closely look at Portugal, Italy, Ireland, Greece and Spain – the so-called PIGS that, while financially healthier than Greece, all have large budget deficits of their own. Investors didn't like what they say and the euro fell drastically.Skip to next paragraph
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The European Central Bank (ECB) is administering that $1 trillion emergency reserve for the euro, and is also being allowed for the first time to intervene in Europe's sovereign debt markets. Thomas Klau of the European Council of Foreign Relations sees this as a useful step. “The ECB must continue to demonstrate its independence, and to participate and be flexible.”
But the economic crisis is coming at a time of a European identity crisis, with voters looking more toward populist messages and away from the post-1989 days of European unity. There’s an old “north-south” divide partly at work with the Netherlands, Luxembourg, and Germany critical of Spain, Italy, and Greece – in what appear to be old cultural stereotypes playing out. Great Britain has a Tory ‘Euro-skeptic’ prime minister; Germans speak of becoming a normal nation less tied down by guilt.
“It’s complicated," says Karim Emile Bitar, the president of KB Consulting in Paris. "In the context of a family, if you have a brother that shows up after 30 years and needs help, you loan him the money. But if someone shows up and tells you he is your half-brother and that you are obligated to bail him out… well, the bonds are not solid enough for Germans to bail out Greeks. The guy in Normandy doesn’t yet feel connected to the guy in southern Italy.”
With each country going its own way and determining its own austerity measures, the eurozone lacks a unified response to the crisis. Many analysts say the austerity plans of Italy, Spain, Greece and others are a mere short-term solution. "It isn’t coordinated stimulus, it is coordinated depression, which looks like coordinated stupidity,” says Mr. Laurent.
Mr. Geithner, ahead of his European visit, offered calming words, “Europe has the capacity to manage through this,” he told reporters last week. “And I think they will.”
But resolve won't come without cooperation from France and Germany.
The French and Germans “are keenly aware of the fact there will be no reform of eurozone governing systems without France and Germany thrashing out a compromise," says Mr. Klau of the European Council on Foreign Relations. "If it plays out openly that will fuel instability, and I think part of this debate has been counterproductive.”
Former French President Giscard d’Estaing recently said that the spirt of amity in Europe should be restored. "The European system, unfortunately has distanced itself a bit from the practice that we created, which was Franco-German intimacy. We moved away from this practice, and I wish that we would return to it."
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