Just under two weeks ago, the news agenda was dominated by
the result of France’s presidential election run-off, and with some
justification. The French, like many other nations, have a habit of sticking with
their heads of state – one would expect that in a time of crisis and against a
challenger who has never held ministerial office, the incumbent would walk an
even smoother path to re-election than normal.
Yet somehow Francois Hollande’s victory is seen as
unsurprising. The vote was less a response to austerity and recession than it
was a rejection of the centre-right (the Socialists had been out of power for
nearly two decades) and of Nicolas Sarkozy himself – a President who promised
much but lost his way as his reign became overtaken by events. An electorate
that stunned a continent by rejecting the EU Constitution a few years ago will
have thought nothing of ousting him.
Apparently other European political leaders did not see it
the same way, though. David Cameron refused to meet Hollande when he visited
London to campaign for the votes of French expats there; Italy’s Mario Monti
had no time for him; Angela Merkel might as well have run Sarkozy’s Berlin
campaign branch. You could be forgiven for expecting humble pie to be on the
menu at this weekend’s G8 summit.
But a different election, held on the same day, has already
had far more significant ramifications and will completely dominate the
gathering. Greece’s voters did not merely demonstrate their anger at a particular
party or individual, but at their country’s entire political establishment and
its pandering to external demands. For over a week, the plethora of factions
(left-wing and right-wing) to whose representatives voters had turned tried in
vain to form a credible government.
Their failure has resulted in the calling of fresh elections
to be held next month, and has in the meantime plunged the Eurozone into yet
more crippling uncertainty. Add to this a deterioration in confidence in
Spain’s banking sector and Europe appears to be back on the brink.
Monsieur Hollande had better start making friends fast, but
his determination to put economic growth at the top of the agenda flies in the
face of Chancellor Merkel’s deep-rooted belief in the need for ruthless
austerity as the cure for Europe’s ills. The new French President must also
overcome Britain’s resistance to a financial transactions tax.
One ally whose support Hollande should be able to count on
is President Obama, who backs his pro-growth doctrine, although his advisors
have also declared, in typically diplomatic fashion, that this is a European
crisis urgently requiring European answers. Mr Cameron sent a similar message,
albeit in much starker language, in the House of Commons this week.
With so many divisions and so much at stake, the summit is
almost certain not to deliver any substantial decisions or promises, but as
always when the financial markets are involved, signs and signals will be key.
After all, nothing much has happened in the past fortnight
that could not have been expected, but the simple fact that the ‘Merkozy’
double-act has been torn up, that Greece’s politics has been torn apart and
that the pillars of Spain’s banking sector are being torn down – and moreover,
the prospect of where these events might lead – has spooked Europe’s investors.
Uncertainty breeds uncertainty, reinforcing the vicious
circle of financial crises. But it is mainly the political events that have
sparked this latest episode. This is no time for humble pie.
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