History merely repeats itself as a farce, Marx said. Or is it repeating itself as a greater tragedy?
When the EKT kicked off the annual summer meeting of the world’s biggest central banks exactly ten years ago in the sleepy Portuguese town of Sintra, 60km southwest of Lisbon, many analysts had a rather gloomy view of parts of the European Monetary Union.
The then president of the ECB, Mario Draghi, had saved the euro two years earlier with his famous phrase “whatever the cost”.
At the time, Christine Lagarde, still head of the International Monetary Fund, gave the opening speech at the Forum, quoting the words of her compatriot, the French writer Victor Hugo: “Emergencies have always been necessary in order to move forward.”
Ten years later, Lagarde returned to deliver the opening speech in Sintra, this time as president of the ECB, with many “extraordinary” incidents ahead, then a great electoral success for the far right in her home country, France.
French government bond yields have been rising for weeks. This means that Paris has to pay ever higher interest rates on its government bonds to obtain new money. This is due to the country’s extremely high debt level, which cannot be ruled out rising further if the new French government implements its fiscal promises, which will cost around 200 billion euros.
All this is fatally reminiscent of the situation in Greece 10 years ago, even if Paris is not Athens.
But most importantly, the ECB will not be able to save France – the second largest economy in the eurozone.
With a GDP of around €2.8 trillion – more than ten times that of Greece – even the ECB would be stretched to its limits by a potential bailout.
A serious euro crisis involving France would cause the monetary union to break up.
Christine Lagarde wisely avoided mentioning the matter, as any hint could cause panic in the markets.
German reaction
But earlier, German Finance Minister Christian Lindner quickly threatened that any ECB intervention in the event of a fall in French government bonds after the election would be illegal.
However, since Macron’s decision to call new elections, paving the way for the expected far-right takeover, a European sovereign debt crisis has become a daily possibility.
The important thing is that, unlike in 2012 and in the case of Greece, however, it is not clear to what extent the Germans want to “save the euro”.
Ten years ago, also thanks to the common currency, Berlin prospered, but today it has lost access to Russian gas and is facing strong winds from a trade war with China, but in the future also with the USA if Trump returns to the White House.
Who will pay for the European restart in the very narrow steps of a green transition that no one wants to pay for anymore? In a long-term inflationary scenario, what holds up well?
Therefore, there are all the elements to paint a story of internal European crisis in black.
But even as the problems mount, Europe does not seem to fully understand what is happening. Alone among industrialized countries, it is still engaged in a costly green transition that others have decided they cannot afford. And this is because the turmoil in trade and supply chains continues. But also because every bit of fiscal space must be preserved for the well-being of families and the strengthening of businesses.
Otherwise, the dominance of the far right in France will very soon spread throughout Europe.