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The recent weaker eco data combined with the French elections led has led to heightened criticism of the EMU crisis response strongly focused on austerity, stability and structural reforms and largely dictated by Germany.
The frontrunner in the French presidential, Mr. Hollande, called for a change in policy and a focus on growth. He said that if he wins the presidential elections, he would lead the European opposition against Merkel. “Germany will not decide for all of Europe”.
Mr. Hollande suggested that he has the support of the Southern European countries in his quest for growth. Chancellor Merkel on the contrary seems to have lost an important ally, Mr. Rutte of the Netherlands who resigned and faces elections in September.
Also Mr. Juncker, the outgoing president of the important Euro group of Finance Ministers meddled in the debate saying he is tired of Germany and France interfering in the debt crisis managing. Chancellor Merkel did some damage control by also embracing growth and jobs, even if she firmly refused a renegotiation of the fiscal compact.
Mr. Draghi, before the European parliament, said that Europe needed besides a fiscal compact a “growth” compact. So, apparently, rather late but better late than never, consensus seems to be building round the importance of growth when fighting a debt crisis. However, appearances sometimes are deceptive.
Europe would not be Europe, if parties hadn’t large differences on the content. For Germany, the growth initiative may not compromise the financial health of countries, meaning austerity efforts should be continued unabated. Germany probably may accept major infrastructure projects, financed by “project” bonds, and a strengthening of the capital of the European Investment Bank.
These items may be on the table at the next Summit that takes place in June. Of course, part of Mr. Hollande’s rhetoric is clearly directed to the French voters and after the elections some realism will return. However, it remains to be seen whether Mr. Hollande is satisfied with these, all in all limited, growth initiatives that seem acceptable for Germany. Given the implementation time needed, it remains a question whether they won’t be too little and too late to avert a more negative economic environment.
Don’t expect new measures at tomorrow’s ECB meeting, but the tone of the answers of Mr. Draghi at the press conference will be important. He will keep the door for eventual further easing.