Everyone’s holding their breath until mid-June, when the Greek elections take place. In the meantime, the Eurozone is heading into a deep recession and Germany is bickering with, well, everyone. Ambrose Evans-Pritchard gives us the dynamic.
Another month of EU stasis is unlikely to prove a winning formula. The eurozone’s manufacturing and service surveys for May were the worst in 35 months. “Truly dismal,” said Howard Archer from IHS Global Insight.
“The Greek exit effect is starting to take its toll on an already brittle eurozone economy,” said Nicholas Spiro, from Spiro Sovereign Strategy. The danger is no longer what will happen if Euroland unravels, but “what is happening”.
Meanwhile, the new President of France is proving to live up to his nickname, “Marshmallow.”
French president Francois Hollande achieved his coup de theatre. The French media gently accused him of staging a choreographed spat with chancellor Angela Merkel over eurobonds, knowing that Germany will not share its credit card with the debtor states until there is a fully-fledged United States of Europe – anathema to France. “While Germany sees eurobonds as the end point, we see them as the starting point,” said Mr Hollande.
His eyes are on France’s legislative elections in mid-June. He has already fudged campaign pledges to withdraw troops from Afghanistan. He risks haemorrhaging support to the Left Front of Jean-Luc Melenchon if he yields on calls for eurobonds, a “growth compact”, and an EU “Tobin tax” on financial transactions.
Officials at the Elysee fear a Red-Rose coalition if Mr Holland’s socialists fail to win an outright majority, evoking memories of Leon Blum’s Front Populaire in 1936 that set off a run on the French banking system and forced the country off the Gold Standard.
The reality is that this is entirely about a grudge match between Germany and the Greek leader Alexis Tsipras.
EU officials hope that the real business of creating an “economic union” to match monetary union will start in earnest once the French and Greek elections are out of the way in mid-June.
They are betting that support for Greece’s anti-bail-out firebrand Alexis Tsipras will peel away as voters reflect on his contradictory promise to tear up the EU-IMF Memorandum and yet keep the euro. Europe’s Green leader, Daniel Cohn-Bendit – himself a star of the barricades in 1968 – accused Mr Tsipras of “deceiving the Greek people” with false hopes. Such criticisms sting.
The ECB can force Greece out of the euro at any time by cutting off emergency liquidity support (ELA) for Greek banks, now running at about €100bn. Germany’s Bundesbank hinted at such action on Wednesday.