The dominoes continue to fall. The deepening of the Eurozone economic crisis claimed the sitting governments of Greece and then of Italy, and the biggest domino yet–French President Nicolas Sarkozy–trailed French socialist Francois Hollande after the first round of voting during the weekend. As the French political class began preparing this morning for the upcoming runoff between Hollande and Sarkozy, they were greeted with the expected news of the collapse of the Dutch government.
This latest is the most significant for France, if only because the Netherlands was generally supportive of the austerity-first budget strategy promoted by Germany and backed by Sarkozy. But the political currents began pulling the French president as well, who was sufficiently spooked by the events of the past week, as the Wall Street Journal reports:
Following the weekend political developments in France and the Netherlands, the German-inspired fiscal pact, agreed by Eurozone leaders in Brussels in December, could also be delayed or thrown into question.
In a U-turn from his earlier stance, Mr. Sarkozy has used recent campaign rallies to call for changing the course of Eurozone policies to ensure they are also designed to stimulate growth.
The blame game has commenced, with predictable parameters. The Journal’s editorial notes that because Sarkozy’s chances for success in the runoff election hinge on his ability to woo right-wing voters who supported neither Hollande nor Sarkozy in the first round, his “appeal will probably include a combination of anti-immigration riffs and more attacks on the European Central Bank (which has become the modern French substitute for running against the Germans).” The feeling is mutual, writes Mathieu von Rohr for Der Spiegel:
This election is a referendum on Sarkozy’s presidency…. His first-round result is poor, as was expected — Sarkozy is the first incumbent in the Fifth Republic who didn’t win the first round. It is an expression of the almost physical revulsion that many people feel for him.
If there’s any immediate relevance for President Obama’s reelection campaign, it’s that he probably cannot afford a Eurozone collapse or another serious financial crisis in Europe. A big question will be how the markets react and how nervous they get. In February, global markets rose on just the expectations that a Greek deal was imminent. In the near-term, this week’s events won’t calm anyone’s nerves, and the markets today predictably signaled their discontent. Long-term, a French-German split would likely be a headache for everyone on both sides of the Atlantic.