France's position on managing the sovereign debt crisis differs fundamentally from Germany's. Germany has said it will not agree to proposed solutions that would essentially turn the eurozone into a transfer union until the rest of Europe can balance their budgets through austerity measures. Germany believes this must be the first step to further EU and eurozone integration. Hollande takes a different position. He, too, wants greater European and eurozone integration. However, Hollande advocates economic stimulus alongside austerity measures as a means to rebalance the finances of European governments.
Hollande wants to grow Europe out of its financial problems. This means stimulating economies, a process that requires deficit spending. Hollande upholds a traditional Keynesian tenet that increasing demand for goods among consumers will increase economic activity and increase investment. As a Socialist with a strong leftist contingent in his party, Hollande cannot support the German position, which constrains the economy, particularly by decreasing government expenditures, thereby depressing consumption.
The difference between the French and German approaches is substantial. It reveals a dispute at the heart of the European strategy for managing the crisis. The Germans have been aggressive in demanding balanced budgets. The French are becoming equally aggressive in demanding expansionary policies. Both want to avoid defaults, but the Germans want to guarantee payments of debt by a combination of bailout and austerity. The French want to add stimulus to this, which changes the situation entirely because the stimulus would be funded in large part by German coffers.
This is not a simple matter of divergent economic theory. It is a matter of national interest. France is not as economically decrepit as Spain or Italy, let alone Greece, but nonetheless it is feeling the pressures of the financial crisis. If Europe continues on its path toward recession, France will face higher unemployment and therefore domestic political pressure under the German plan. It is not in Hollande's or France's interests to follow the German course. For its part, Germany cannot risk further government deficits in the European economic system. Germany's robust economy gives the country a financial cushion to soften the effects of deficit cuts; the rest of Europe, including France, does not have this luxury.
Interestingly, France and Germany were as one on this issue until Hollande was elected president. Indeed, the foundation and mission of European integration has been the close alignment of Germany and France. A founding principle of the union, such an alignment guaranteed stability and discouraged conflicts that had torn Europe apart. Now, Europe has lost its coherence at the highest level, albeit in a more orderly manner than in Greece.
Disharmony and Public Opinion
Of course, the situation is not that simple. What Germany says it wants differs from what it allows to happen. Germany claims to favor disciplined austerity, but more than any other country Germany needs the eurozone to stay intact. It is thus willing to compromise on austerity and on underwriting bad debts. On the other hand, Germany rejects the idea that a systematic strategy to stimulate growth is needed or likely to work. France sees no other solution, lest it face austerity itself. Both want different fiscal policies from the members and also, logically, from the European Central Bank.
From the most beleaguered members of the European Union to the relations between its strongest and most stable members, there is now profound disharmony. What drives this disharmony is public opinion. The Greek public is divided politically; therefore, Greece is paralyzed. France held an election in which Hollande, who holds serious doubts about German policy, forced out and replaced former French President Nicolas Sarkozy, who shared the German position on managing the crisis.
