Since early November, Johan Van Overtveldt, author of the new book, The End of the Euro, has been blogging here about the eurozone crisis.
The discussions about how to solve the structural problems facing the European monetary union have repeatedly been overshadowed by electoral concerns in the member countries. The biggest upcoming electoral event in Europe is the French presidential election to be held in May. Nicolas Sarkozy is facing an uphill fight against his socialist challenger, François Hollande. Hollande is leading Sarkozy in the polls by a comfortable margin.
Hollande has made the euro the center of his campaign. In particular, he is questioning the role the European Central Bank (ECB) has played in the crisis so far. Hollande wants two things. First, he’s calling for a fundamental change in the status of the ECB. He wants its independence reduced, and he wants more political control over monetary policy. Second, Hollande cannot imagine a structural cure for the problems plaguing the eurozone without the ECB intervening on a much larger scale in the bond markets, and buying up massive amounts of the bonds issued by countries facing financing distress—Italy, Spain, Greece….
These ideas of Hollande’s are anathema to Germany. An independent central bank is an essential part of how the Germans approach finance and economics. Chancellor Angela Merkel and the Bundesbank, Germany’s central bank, have voiced strong opposition to larger bond interventions by the ECB. As documented fully in The End of the Euro, the role of central banks has historically been a constant source of friction between Paris and Berlin. At the moment, it is not clear whether Hollande is advocating these ECB-related ideas as campaign fodder or whether he is genuinely convinced of their merit. If the latter, he’s facing battles with the Germans he’s bound to lose should he defeat Sarkozy in May.