WASHINGTON — On Sunday, Parisians once again took to the Bastille, although this time, it was to celebrate the election of a new president. François Hollande ousted Nicolas Sarkozy in the run-off vote and will next week become the second socialist president of the Fifth Republic. In the midst of a deep malaise, the French asked for a head to fall, and obtained it. But it remains difficult to understand what the people really voted for or what they truly wanted out of this election. And it is because of such uncertainty that this revolution, should it even be one, will not spread.

Hollande campaigned on change, a proven recipe for success, but it is likely that a majority of the French electorate voted Sarkozy out of office, rather than Hollande into it. The French call it alternance, or the necessary change in political leadership for the democratic process to be fully viable. Left or right, and time permitting, alternance is unavoidable, but explains why political transition occurs smoothly in France, without the cacophony of other political systems in Europe. Parliamentary elections will be held in June and, notwithstanding a surprise, the newly appointed president should receive the support of a socialist majority.

While the French presidential election did not throw the country into turmoil, it did reveal some deeper scars, and the immense task that lies ahead to reunite the people. The country may be split in two, or three, even four, but  the election process did not create instability. Even the growing extremes are not in a position to hold government responsibilities. As always during a presidential election, the debate was passionate, sometimes crossing self-imposed red lines, and drawing the voters to the ballots as turnout topped 80 percent. But this time, it seemed personal. Voters did not explicitly vote against austerity. Although they shared broader concerns over jobs, growth, youth, and education, it was the relationship between the people and their president that was being put to test. That, certainly, will change.

In Brussels, the transition from “Merkozy” to “Merkollande” will also take place. François Hollande will not revolutionize EU affairs nor will there be a complete reversal of France’s foreign and European policy. Incentives for growth will be adopted, but as complements of fiscal consolidation. What will be negotiated as a compromise for an agreement in late June in Brussels remains to be seen, but austerity measures will not swiftly disappear. Looking farther ahead, the challenge is greater. Member states have to decide how much individual sovereignty they are willing to give up for the sake of a common future. President Sarkozy went further in the French concept of the gouvernement économique than anyone could have anticipated. By placing the intergovernmental process at the very heart of the resolution of the crisis, he and German Chancellor Angela Merkel set the tone and pace for the much-needed discussions on Europe’s political future. It is no surprise that François Hollande will meet Angela Merkel on May 16, a day after his inauguration, as he will need to show results quickly to assert his credibility in Europe and at home. Hollande’s meeting with U.S. President Barack Obama ahead of the NATO Summit in Chicago will also be closely watched.

It is still unclear what the French electorate really wants or if François Hollande will become the statesman he convinced the majority of voters he could be. What is certain is that the French public has asked for a different type of politics and leadership. France is struggling to answer the fundamental questions of its social values and economic principles. If there was one point of consensus, it was that beyond the crisis lies the preservation of the Republic’s core principles.

Guillaume Xavier-Bender is Program Associate with the Economic Policy Program of the German Marshall Fund of the United States in Brussels. 

BRUSSELS — Old habits do die hard. In the past year, and dramatically in the past month, references to German dominance of Europe have multiplied. They are motivated by Berlin’s leading role in solving the Eurozone’s sovereign debt crisis, including in the deal agreed to today. Direct parallels with Nazi Germany’s ambitions have been dared: winner of World War II; IVth Reich; Gauleiters in Greece with the “Third Reichenbach” in the new Gestapo headquarters. Chancellor Angela Merkel’s policymaking has been described as Bismarck-like. And these parallels did not emerge only from angry blogs or tabloid headlines, but in the mainstream media and in public interventions, too.

Really? Do Europeans still think that way?

There is an evident contradiction within the EU in asking for Germany to live up to its responsibility but at the same time making sure Germany does not get too powerful. More than that, Europeans have been hearing claims at the political level that Germany has finally succeeded in dominating Europe. Economic dominance has led to long-awaited political dominance. Within Germany, some are proud; elsewhere in Europe, some accuse.

Nowadays, it seems a clear separation is deliberately being made between Berlin’s actions or inactions, and its intentions. In times of crisis and elections, shortcuts with the past are dangerous, easy, tempting: because Germany is the only one who can save Europe (although Germany alone cannot do much), Germany wants to dominate Europe, and it never stopped wanting to.

On Monday, during a key press conference on the future of the EU, President Sarkozy and Chancellor Merkel jointly condemned and warned against such amalgams, which have largely come from those out of power. Several French ministers have also come out strongly to protect France’s friendship with its German ally.

Populist and nationalistic discourses in European democracies are one thing. Defending national interests and sovereignty around the negotiation table is another. But doing it by using blunt fear is dangerous and petty. It is not courage, nor determination; it is frustration and dishonesty at their worst.

Not all fault lies with those outsiders. Berlin’s hesitations to fully step up are fueling negative outside perceptions of the country. And the more Germany is put in the spotlight before every “crucial” summit, the more it will be perceived as setting the agenda, or worse, pushing its own. But wouldn’t it be the same for any country in this position? The hit at Germany is cheap, and most know it, but they still enjoy the sport of it. Is this how the EU’s great political, economic and social achievements should be summarized? And why are new generations more frightened by Germany than older ones?

The sad comparisons and references to Europe’s history barely conceal the more fundamental issue of peoples’ perception of leadership, dominance, and domination. The three concepts are different, much in the same way that responsibility, influence, and control are distinct, too. Perceptions have the ability to irrationally downplay actions or exacerbate intentions. Dominance is a perception, domination is a fact. Leadership is a driver, and Europe has not been led for a long time. While most Europeans are adjusting to the idea of having someone in the driver’s seat, it is a collective responsibility to make sure that vile sentiments from the past do not resurface and tarnish the immense opportunities that lie ahead for peace and prosperity in Europe. Let’s not take either of the two for granted.

When Europe is asked to be at its best, some always feel the urge to immediately bring it down to its worst; and mostly for short-term political gains. It’s lunch money. But Europe is not a playground and the line is thin, very thin, between politics and ideology, calumny and desperation. Let’s not walk that line.

Doomsday scenarios for Europe will continue to be drawn, and Europeans will keep on pointing fingers at each other in case of feared failures. But in today’s environment, deeply rooted blame will fall inevitably on Germany at every single occasion; this might only be the beginning of the wave. Germanophobia is not the hatred of Germany — it is the fear of Germany. As such, it risks becoming the easy excuse to dodge one’s responsibilities, and to prefer inaction and apathy. All-for-one, yes, but never one-for-all.

Raising the specter of German dominance will follow trends and personal agendas across European countries. It is not rampant, but very much standing straight. As so, it is the duty of political leaders to firmly reject and condemn any attempt, by anyone, to revive fear, anger, and worse among the peoples of Europe.

In Brussels, the offspring of two nationals from different member states are valued as children of a “mixed couple.” In slowly finding its way out of the crisis, and ahead of unforeseeable challenges, Europeans need to be reminded of what they have achieved through tolerance, humility, and understanding in a little less than 65 years.

Guillaume Xavier-Bender is a Program Associate with the Economic Policy Program of the German Marshall Fund in Brussels.

Image by the European Council.

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BRUSSELS—Yes, “Europe will be the focus of the Cannes Summit.” Although anticipated, the blunt statement from European Commission President Barroso and European Council President Van Rompuy seemed both redundant and inspiring. Redundant, because a €1 trillion commitment needs implementation and global coordination that only the G20 can offer. Inspiring, because this crisis serves as the needed impetus to drive collective aspirations by the G20 for attaining sustainable growth.

Reflecting on the goals of the French presidency of the G20 and its original ambition, however, one wonders about the fate of other crucial issues, such as the reform of international financial institutions (IFIs), food security, and international development.

The past two summits demonstrated near irreconcilable disagreements between main players on long-standing agenda items ranging from addressing financial regulatory reform, to tackling macroeconomic imbalances and the way forward for multilateral trade. Finding agreement on issues involving structural adjustments is by no means a short order. But measurable progress on items long identified as a priority by the G20 is inherently related to the group’s shelf-life and its ability to move from a temporary crisis-fighting mechanism to an enduring forum capable of shoring up market confidence and providing political leadership and vision to tackle global economic challenges.

Deliberation over the crisis du jour in Toronto and Seoul threatened to hijack both of those carefully laid out summit agendas. “Stimulus vs. austerity” debates prior to the Toronto summit sidelined anticipated agenda items related to the reform of IFI governance structures and a global bank tax, and competitive devaluation of currencies brought “currency wars” to the forefront of discussions in Korea. This is a trend that observers predict will continue in Cannes as leaders continue to grapple with implications of the euro rescue fund and the unexpected announcement of a Greek referendum on last week’s agreement.

Although Europeans used the argument of a possible hijacking of the G20 summit to raise the stakes of sealing a deal on the Eurozone’s rescue fund, given the rap sheet of previous summits, there is little doubt that this will be the case from the start. French diplomats even warned against the possible “cannibalization” of Cannes.

In anticipation, President Obama has announced that he will meet Chancellor Merkel and President Sarkozy, chair of the G20, bilaterally. Yet, at a time when Europe is calling on the rest of the world to contribute to the recovery of its economy for the preservation of global wealth, the French president is scheduled to meet with the Chinese president first, the U.S. president second. Cannes’ focus may be Europe, but Europe’s focus in Cannes will be the rest of the world.

After consecutive summits with subpar performances, the G20 is past due to repeat the early successes of delivering on its commitments. The creation of the Financial Stability Board (FSB), raising the IMF’s lending resources, and boosting the capital base of MDBs and the IMF by $1.1 trillion demonstrated concrete results. This first propelled the G20, ahead of its institutional competitors, to prominence as the much proclaimed post-modern vehicle for getting things done. But without tangible results, pledges for taking coordinated action on long-standing agenda items are in danger of falling on deaf ears, and will continue to harm the G20’s credibility.

Naturally, the forum should and will continue to serve as a platform to address pressing crises . However, Cannes provides an opportunity for the G20 to go one step further. By striking a delicate balance between devoting time to short-term imperatives, i.e the eurozone crisis, and exhibiting strategic foresight in making strides toward implementing previously identified commitments, such as bolstering the authority of the FSB, injecting political leverage into the reform efforts of IFIs, and promoting its development agenda, the G20 will continue to build its credibility.

While its current informality is the source of its flexibility, the G20 needs to find a way to address short-term shocks without sacrificing its capacity to deliver on its standing commitments. And despite the creation of the troika of hosts, instituting a mechanism to ensure the smooth transition of working groups and structures from one host-country to the next may facilitate the process of sticking to its check-list by prioritizing pledges.

Michael Froman is right when saying that the G20 has been promoted to become the leading forum to review challenges facing the global economy. But in any era of “messy multilateralism,” as characterized by Richard Haass, establishing its reputation as an effective and legitimate body that is capable of achieving results by transcending divides between established and emerging economic actors hinges on the group’s ability to start thinking and acting in the long term.

In an ironic way, it’s a conundrum Europe has been facing in building its economic and monetary union for the past 30 years…

Guillaume Xavier-Bender is a Program Associate with the Economic Policy Program of the German Marshall Fund in Brussels. Roman Balin is a Program Coordinator for the German Marshall Fund’s Immigration and Migration Program in Washington, DC.

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BRUSSELS – In late August, Christine Lagarde, the newly appointed managing director of the International Monetary Fund, called for “urgent recapitalization” of European banks in order to cut “the chains of contagion” emanating from the euro crisis. The same day, Jean-Claude Trichet, governor of the European Central Bank, swiftly dismissed concerns about a liquidity problem in Europe. But Mrs. Lagarde had said out loud what many central bankers were discussing in private: the exposure of European banks to Greek sovereign debt might trigger a liquidity shortage throughout the European Union that would have worldwide repercussions.

Under this feared chain-reaction scenario, few analysts expected the French-Belgium bank Dexia to be the first victim. Indeed, the bank had received €6 billion in aid in 2008, and its assets were estimated in early October of this year to be 96 times its €5.4 billion exposure to the Greek debt. Above all, it had easily passed the European Banking Authority’s (EBA) stress test last July. On September 23, discarding any reason for concern, the governor of the Belgium Central Bank assured the public that Dexia Belgium was “not in trouble.” It did not take long for this to be proven false.

In mid-October, the French, Belgian, and Luxembourg governments were forced to dismantle Dexia. After a 14-hour board meeting, it was decided that the Belgian state would take complete control of the bank’s depositary activities in the country, at price tag of €4 billion, and that France would set up a new municipal-lending entity, another of Dexia’s activities, to be jointly owned by the Banque Postale and the Caisse des Dépôts et Consignations (CDC). Finally, a “bad bank” would be created, to hold Dexia’s bad debts, backed by a split €90 billion guarantee (Belgium: 60.5 percent, France: 36.5 percent, Luxembourg: 3 percent).

It all went very quickly. But, in the end, the bank did not collapse; it was dismantled. Its nationalization in Belgium showed governments’ readiness to intervene promptly in the banking sector. And despite initial fears, there was no major bank run, no dramatic spillover. It simply worked. While being pressured by growing public indignation, as well as ongoing discrete preparations for a probable Greek default, EU leaders demonstrated their determination to make difficult decisions at the national level when most needed. But such an isolated reaction is not sufficient to exit the crisis.

When EU Council President Herman Van Rompuy postponed the EU Summit last week to this coming Sunday, he wanted time “to finalize our comprehensive strategy on the euro area sovereign debt crisis covering a number of interrelated issues.” The ambition of the summit was set: agreeing on a comprehensive plan to solve the crisis. The blueprint, being drafted by France and Germany, converges positions on reducing Greece’s debt, stopping contagion, and protecting European banks, and is designed to pull other eurozone member states toward more intervention and coordination. It is this same fully coordinated action that European Commission President José Manuel Barroso has called for in proposing to increase bank capital requirements to 9 percent in the EU.

Indeed, Europe has done much more than it is generally given credit for in a short period of time. Since Mrs. Lagarde chastised Europe, the ECB has bought €160 billion of Greek debt, and it will offer unlimited liquidity at least until July 2012. Dexia was rescued. France and Germany agreed on the principles of bank recapitalization. The markets and the euro plunged and rose again. And support for a change in the governing EU Treaty is seriously being considered. Yet, more is needed. G20 finance ministers, who gathered in Paris in mid-October, urged the EU to “decisively address the current challenges through a comprehensive plan” on October 23. And, according to U.S. Treasury Secretary Timothy Geithner, “When France and Germany agree on a plan together and decide to act, big things are possible.” No pressure!

Dexia’s dismantlement proved that the risk of contagion is real, but, also, that such contagion can be contained by a subtle dosage of government intervention. This is not surprising, at least in Europe. Following Fitch’s downgrades of four European banks, and warnings over potential failures of revised regulatory stress tests by the EBA, coordinating bank recapitalizations of up to €300 billion across the EU is a natural step forward. But this is just a tactical move and should not be hailed as a grand strategy sufficient to exit the crisis. By setting critical deadlines, by playing the “EU survival” card every two weeks, policymakers are raising the stakes, artificially boosting belief in an immediate solution to the crisis. Bank recapitalization is not a solution per se. It is a means to restore some stability while knowingly taking the risk that new restrictions on banks may hamper private investment. As German Finance Minister Wolfgang Schäuble rightly has warned, although a package of policies should be agreed upon on October 23, “providing cover for uncertainty in financial markets,” a permanent solution is unlikely to be produced at the summit. In response to this statement, which was backed by German Chancellor Angela Merkel’s cabinet, stocks fell sharply worldwide.

The past year has demonstrated that artificial deadlines to survival cannot be met on both sides of the Atlantic. And why should they when policy adjustments are needed daily? It is unlikely “big things” will be decided this weekend. But time is short. The eurozone butterfly’s wings are fluttering faster and faster. And that’s one economic forecast no one can accurately predict.

Guillaume Xavier-Bender is a Program Associate with the Economic Policy Program of the German Marshall Fund in Brussels.

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by Eszter Hegyi and Guillaume Xavier-Bender.

“A success”, “a disappointment”, “a mixed bag”: the assessment of Hungary’s presidency of the EU, which ended on 30 June, is widely divided across Europe. In Central and Eastern Europe the general opinion seems to be positive; in Brussels, perceptions are different, dimmer. But how can one objectively declare a presidency successful or “irrelevant”? And, in this case, should Hungary’s success be measured only by the sum of goals met?

Since the creation of the position of President of the Council by the Lisbon Treaty, determining the role of the rotating presidency of the EU has been very difficult. Nonetheless, more than just being its administrator, the presidency still sets the EU’s political agenda. As for Hungary, it wanted to expand the dream of Europe to its neighbors. Accession negotiations with Croatia were successfully concluded at the end of June and there is a real possibility the accession treaty will be signed before the end of 2011. Budapest’s active “conducting” of the talks created the conditions for the negotiations to be concluded and paved the way for agreements on the last five chapters. Hungary also successfully pushed forward the Danube Strategy adopted on 24 June – the EU’s second macro regional strategy after the Baltic Sea Strategy sets to build economic, social and environmental cooperation among 14 countries (8 EU and 6 non-EU member states) along the Danube by ensuring, in the long run, improved, targeted and commonly supported cross-border investments and projects across Central Europe and the Balkans. In addition, Hungary was instrumental in outlining a common Roma Strategy. With 80% of the European Roma population living in the CEE region and the prospect of both Romania and Bulgaria joining the Schengen Area in October 2011, expectations from other member states were high. The strategy comes at a time of growing integration and migration concerns throughout the Union.

These are undeniable successes. But, as in the case of many other rotating presidencies, Hungary was not able to meet all of its goals. Furthermore, unlike the experienced Belgium before it, Budapest was taking on the rotating presidency for the first time and had to define the role it wished to play. After setting ambitious goals at a time of multiple challenges, the Hungarian government found its place within Europe’s political impulse; sometimes, unfortunately, at the expense of great opportunities. Postponing the Eastern Partnership Summit might have indeed been the reasonable “purely logistical” decision to make, but it meant dismissing potential political gains at a critical time for the EU’s neighborhood. In addition, although the reform of the EU’s economic governance (“six-pack”) is well underway, a final agreement is yet to be reached. A “stronger Europe”, the motto of the Hungarian presidency, was needed to consolidate the launch of the European semester with a reform of economic governance and its oversight. But where the Hungarian presidency did not succeed, it did not necessarily fail. Budapest demonstrated repeatedly its ability to create the conditions for future agreements to be reached at EU level. Its institutional work, in particular its commitment to encourage and preserve contacts between the Commission and the European Parliament on economic and social issues, most importantly concerning the EU’s next multi-annual financial framework (2014-2020), will have lasting positive consequences.

What then divides perceptions? Hungarian internal politics have played a crucial, yet involuntary, role. The media law and the country’s new constitution were strongly criticized in the early stages of the presidency. Despite initial efforts to reassure its partners, Hungary missed the opportunity to secure a good image from the start. And image often drives perception. At a time of unprecedented challenges for Europe (Eurozone sovereign debt crisis, Fukushima nuclear disaster, the “Arab Spring”, etc.), much trust was needed in the presidency to make opportunities out of them. Early on, expectations remained low with, in a few cases, other member states taking the lead according to urgency and the level of their concern. It is with patience and discretion that Hungary found where its action would matter most.

Despite the external and internal challenges that often overshadowed its work, Budapest did its best to strengthen Europe politically, economically, socially and institutionally. While in some parts of the “Brussels sphere”, Hungary’s presidency might be perceived as having been irrelevant, in Central and Eastern Europe, in the Balkans, along the Danube and even within Strasbourg’s hemicycle, it has been praised for its focus on what matters locally. At a time when the world seems to only see Europe through the prism of its finances, Hungary succeeded in making sure that all the lights of European integration were kept green.

Picture: Freebase.com

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BRUSSELS — EU Commissioner for Economic and Monetary Affairs Olli Rehn rightly stressed in late May, “There is a certain aid fatigue in all of northern Europe [and] a certain reform fatigue in southern Europe.” Nearly a month later, nothing has changed. Yet both the United States and China have upped the ante by signaling that an uncontrolled debt spiral and string of defaults in Europe could be disastrous for their own economies. So what should the EU do? And, importantly, what will be the lasting legacies of any measures it takes?

Reinvigorating Europe by asking bondholders to support aid and reform initiatives seems to be an appropriate and reasonable idea. But to avoid triggering a credit event, then, calls for astute political maneuvering that overcomes the past months of standstill negotiations. Details of an additional aid package to Greece financed through both official and private sources, which could reach €120 billion, will be determined by early July. Until then, the EU is conditioning any further aid to the full support of new austerity measures by all Greek political parties. Yet the possibility of default still exists, and the financial sector has already asked for better incentives to participate in the “informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme.” Monday’s timid compromise by the Eurogroup finance ministers might not be visibly sufficient, but there is more than meets Polyphemus’ eye.

The “Greek problem” raises a broader and deeper concern. While perception keeps driving decisions, the fear of a financial and economic chain reaction has accelerated the EU’s integration by pushing institutions and member states to quickly decide on issues of governance, accountability, and leadership; essentially to agree on the politics of European economic policy. Through this process, all involved are framing the limits of their powers and responsibilities. This week, European leaders will set the new terms of Europe’s economic union. In a year’s time, they have been asked to agree on strategic decisions they have postponed for decades. Beyond the Greek sovereign debt crisis lies the more profound issue of European political integration; Europe needs a “new reunification,” this time of the North and South. Yet with the economic and social struggles ahead, and in the face of a slow recovery, Europe also needs strong political leadership to look beyond special interests. Only tough political choices today will make the sound policies of tomorrow.

It is unlikely that all questions will be answered by the end of this week: on mechanisms to help “failing” member states, on the control of public finances, on setting standards, on respecting subsidiarity, on the role of the IMF, or on the balance between private and public ownership of the European economy. But despite the disagreements, the grievances, and the final compromise, the EU will come out stronger. By sticking to its mission statements (safeguard the value of the euro, promote the general interest of the EU, oversee the correct implementation of the Treaties), EU institutions are pushing member states to be creative, responsible, and audacious. The European Central bank (ECB) itself has been described as using the “central bank equivalent of nuclear deterrence”; its president, Jean-Claude Trichet, even suggested the creation of a European Ministry of Finance. It is not just about the economics. Today’s struggles have a lot to do with regulating economic policy and affirming institutional power. In this sense, the “invisible Brussels” might not easily restore public trust in the EU, but profound changes are underway. Hasn’t the ECB already emerged as a central actor to any economic decision? Hasn’t the Eurogroup become the true hub of European economics? Hasn’t the European Parliament used the opportunity of reforming economic governance to promote further Commission oversight of national economies? Whatever one calls it, the EU is in a period of adjustment or transition or adaptation to a new paradigm — there will be a new equilibrium calling for new policies. Europe will be stronger because it will be different.

A greater question then dominates: Who should lead Europe’s economic policy? The current power struggle between the Commission, the ECB, member states, and to some extent private investors, is more than just about responsibility — it is about leadership and agreeing on a new idea of the European economy. Rarely have policymakers come closer to Belgian economist Robert Triffin’s analogical belief that “the economy is far too serious a thing to be left to the economists.” And if Europe is in a period of transition between economic models, enough time must be given to the necessary political and structural adjustments — time that upcoming elections in Germany, France, and Spain unfortunately might not allow.

Europe was built through the combination of vision, courage, and adaptation to unexpected circumstances. The European debt crisis and its repercussions might be this generation’s tragedy, but it might also be its opportunity to deepen the EU’s integration. It could be its New Deal, its Marshall Plan, its Reunification. European leaders owe their people a political stance — the time has come for a new Declaration, not just another Statement. EU “founding father” Jean Monnet believed that “we only have the choice between changes we are forced to make and those we wanted and were able to achieve.” This week, paradoxically, Europe will be forced to make the changes it always wanted but never dared to achieve.

Guillaume Xavier-Bender is a Program Associate with the Economic Policy Program of the German Marshall Fund in Brussels.

Photo by Christina Kekka

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