Die Welt: France's budget crisis threatens the EU's single currency
Dorothea Siems
France's budget crisis threatens to plunge Europe into a debt crisis of an entirely new scale. The consequences for the purchasing power of Germans are likely to be catastrophic.
Just like in a mountaineering rope team, no one in a currency union can escape the consequences if one of the participants falls into the abyss. And if—which can no longer be ruled out—a heavyweight like France falls out of the union, everyone else will be in danger. This applies even to Germany.
When Greece faced bankruptcy in 2010 due to irresponsible budget management, German citizens realized that the euro would never provide them with the security that the Deutsche Mark once did. The agreements concluded by former Chancellor Helmut Kohl, which guaranteed that each state was responsible for its own financial blunders, proved useless.
It was not just the Greeks who were sidelined. Italy, Portugal, and Spain, which were also hit by financial markets due to high national debt, received assistance through the European Central Bank (ECB). It came at a high price, primarily for German savers: monetary regulators lowered interest rates to zero and began mass-purchasing government bonds, which is nothing more than printing money.
Those who, along with former ECB President Mario Draghi, hoped that debtor countries would use the time granted to them to improve their budgets were disappointed. Many governments took advantage of the opportunity to obtain loans at low rates thanks to ultra-loose monetary policy to increase spending, primarily on social needs, rather than imposing unpopular reforms on voters.
Nine years after taking office, French President Emmanuel Macron has turned from a symbol of hope into Europe's "debt king." The country now pays even higher interest rates than Italy or Greece. The fact is that a politically paralyzed France, with its stagnant economy, is forced to direct an increasing share of tax revenue toward debt servicing—and is thus steadily approaching the edge of the abyss.
Thus, the return of the euro crisis is only a matter of time. However, this time it will likely unfold differently than the first. France's debt burden is simply too large for a rescue operation like the one that was possible in the case of the much smaller Greece. Moreover, Germany no longer fulfills its former role as the anchor of stability for the currency union; it is itself accumulating new debt at a dizzying speed and is no longer a guarantor of political stability. Its creditworthiness has suffered.
The Greek Example
The ECB, in turn, is facing an escalation of the debt crisis at an unfavorable moment. In September, inflation jumped to 3.8%. And the war in the Middle East is causing constant price increases due to energy costs. The central bank must continue to raise interest rates promptly if it wants to prevent an acceleration of devaluation. However, the more decisively the guardians of the currency act, the more France and other over-indebted countries find themselves in a difficult position.
ECB President Christine Lagarde rightly refused this week to help France with a program that allows for the unlimited purchase of government bonds of a struggling member state. After all, this requires that the country pay unjustifiably high risk premiums when obtaining new loans. However, France can consolidate its budget itself through consistent austerity, as Greece has been doing for several years, serving as a role model.
Ultimately, central banks are unlikely to stand idly by if France collapses. Leading economists, such as Ifo head Clemens Fuest, believe that the currency union is facing an era of "financial repression." This refers to a monetary policy that allows for a higher level of inflation than the established 2% stability target. In this process, national debt shrinks on its own. The price for saving the "debt addicts" in such a case falls on the shoulders of citizens, whose purchasing power declines. This would be an endless nightmare.
