In France, Euro Crisis May Bring the End of a Political Era

A short-term political scramble in Paris over how to handle the European mess could transform French politics

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First we were panicked about Greece. Then it was Italy. But lost amid the bold headlines of the past week and the prime ministers falling like dominoes, there's another national leader whose handling of the debt crisis is likely to determine his staying power: President Nicolas Sarkozy of France. And we might want to start paying closer attention.

This past Monday, Sarkozy's prime minister, François Fillon, announced a tough new round of austerity measures, saying, in one translation, that "the 2012 budget will be one of the most rigorous budgets that France has seen since 1945." The announcement is a clear bid to save France's AAA rating, which Moody's has threatened with a negative outlook if France's participation in the eurozone bailouts gets too big for its budget.

The tough part is that austerity measures will take money out of an already weak French economy. France's estimated growth rate for next year is a measly 1 percent -- percentage-wise, a big drop down from the previously estimated 1.75 percent. Austerity measures could eat away at the economy to result in no growth at all. That could have an impact far beyond French borders. Within French borders, there's another complicating factory: Sarkozy is up for reelection next year.

To untangle this mess, I called up David Cameron, a professor of political science at Yale University and director of the Yale Program in European Union Studies. The election puts Sarkozy in a nasty spot, and it turns out that if Sarkozy is in a nasty spot, Europe might be, too. It would be "very bad for Sarkozy politically," Cameron explained, "if for some reason the French rating was downgraded. That's a very simple, symbolic kind of thing that people who don't really know anything about the economics will jump on." But if austerity measures geared at preventing a downgrade "create further economic stagnation," that "may come back to haunt him in the election."

Sarkozy wouldn't be the only one haunted if France's economy started to flounder. France is "a large consumer market," Cameron noted, and if the squeezed French population stops buying things, other countries will feel that, too. "Roughly 70 percent of all the exports of the EU member states go to other EU member states," he said. Though the north of Europe is actually "doing quite well," Cameron also pointed out that "the southern periphery is already facing years of austerity and years of low growth." The new measures risk "aligning France with the south."

Of course, that's not to say the austerity measures aren't responding to a real need. Though France's debt-to-GDP ratio isn't anywhere near as bad as some of the other European countries, a Reuters piece mid-week noted that "some investors say France will be the next victim of contagion." French bond yields have recently pulled away from those of Germany, which is still seen as being pretty safe.

If you're not an economically oriented type, though, there's still reason to watch as this drama unfolds, because it's already spicing up French election politics. Remember how Dominique Strauss-Kahn was once going to be the socialist nominee against Sarkozy? French socialists despaired when the multiple assault allegations effectively knocked him out of the running. But given Sarkozy's remarkably low poll numbers, DSK's replacement on the Socialist Party ticket, François Hollande, might have been feeling hopeful. If Sarkozy's numbers plummet further over austerity measures, as the French press suggests they might, Hollande may feel still more optimistic, but there's a nasty catch: it turns out it's really hard to run as a socialist during a debt crisis.

Slapped down by opponents for proposals deemed too costly for the times, Hollande clearly hasn't known quite how to respond to the austerity push. Professor Cameron wouldn't blame Hollande himself, though. "I don't think the socialists, the left in general," he said, "has come up with a good political response to the eurozone crisis." He observed, "They can't simply say 'well, we should spend more, and just keep spending and reinflate the economy' given what's going on with the debt," and that leaves them in a tricky place, strategically. "That may vary from country to country, but the left hasn't had a good crisis," he added, offering some examples: "Papandreou's resigned, Sócrates in Portugal resigned, Zapatero [in Spain] will be out of a job on November 20th [date of the election] -- those are three socialist governments."

The French left, at least, has recently become very aware that it isn't having a "good crisis." Leftist economists in France are now howling at Hollande to respond to the austerity measures, to stick up for an alternative -- investment in recovery, for example.

For now, though, it looks like Sarkozy's not the only politician struggling to deal with the political terms of the debt crisis. How he and his opponents figure this one out will affect not just their own political fortunes, but France's economic future -- and, by extension, Europe's -- as well. So gawk at the Berlusconi debacle in Italy all you want, but keep an eye on the situation up north as well. Sarkozy and his German counterpart, Angela Merkel, have risked a good deal of political skin in their leadership role in the eurozone crisis recently. Neither they nor the countries they stand for are all-powerful. We could yet see some fascinating shakeups in the core.