Berlin has made clear that it will not let the European Central Bank print money to save France. But...
France is an increasingly poor country that complacently assumes it is a rich one. Where’s the money to come from?
Not from Germany, as it turns out. Its finance minister Christian Lindner has made that clear.
“A tragedy could threaten the French,” he argued on Thursday, if the deficit is not brought under control, adding that intervention by the European Central Bank (ECB) would raise “economic and ... constitutional questions’’.
Until now, investors have assumed that France’s debts, now the third largest in the world after Japan and the US, were backed by the ECB and by implication the rest of the eurozone.
The German economy has been heavily damaged by losing cheap Russian gas. It has the lowest growth in the G7 and its exports to China face obliteration in an EU-led trade war
The problem for Germany is that it will be very hard to stop a bailout for two reasons.
First, Christine Lagarde, the president of the ECB, is French and an ally of Macron. .
Lagarde may well emerge as the prime minister of a technocratic government in France, just as her predecessor Mario Draghi did in Italy.
She is not the woman to pull the plug on the French debt market, even if Germany would like her to.
Second, the merest suggestion that the ECB won’t support France’s debts would create turmoil across the eurozone.
French yields would soar, with Italian soon following suit.
The Greek crisis of 2012 would be on replay, except this time not on the periphery, but right in the heart of the eurozone.
The current German government, or the next one if Chancellor Olaf Scholz is removed from power, will face a very hard choice: bail France out, or risk turmoil within the eurozone’s financial system.
Matthew Lynn Telegraph 28 June 2024
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