by Janine Bernsdorf
Article published on 25th January 2012
If you take a look at the tabloids you’ll notice no reports on turbulent financial markets… so much so that one could even go so far as to say that markets appear to be finding a belated stability.
The panic that many experts feared after the downgrading of nine eurozone countries by rating agencies Standards & Poor’s has failed to materialize. It is surprising¸ but notwithstanding the downgrade investors keep on buying Italian¸ Spanish and French government bonds. But the calm is deceptive and there is a caveat somewhere. This is a thinly-veiled threat that the illustrious Merkozy Duo is moving precariously close to a break up as France lost its top rating and Sarkozy’s chances of being re-elected as president are low. Nostalgically one recalls how¸ during the past months an inseparable bond between Merkel / Sarkozy was formed and saw many stiff economic policies dictated to the other EU members. One reads about the coining of both names Merkel and Sarkozy which led to the new creation of “Merkozy” and characterizes the alliance between the German chancellor¸ Angela Merkel¸ and the French president¸ Nicolas Sarkozy – the co-leadership in the euro crisis and the masterminds behind the euro survival strategy.
In France¸ some people frequently used the term “Sarkel”. It is more than just an amusing detail: in fact it is an indication of the sensibilities of the Franco-German relationship. But now France’s negotiating position with Germany is significantly weakened by the downgrading by Standard & Poor’s. Anyone who claims that Merkel has dominated the relationship from its beginning overlooks the fact that France was able to offset the current economic weakness with great negotiating skills. Among other things¸ France managed to fine tune the rules so that the banks were largely spared. This is best manifested when one reads how the European Stability Mechanism ESM¸ the successor to the euro rescue fund EFSF¸ is going to start early this year after a French initiative.
Furthermore¸ Nicolas Sarkozy was able to assert his policies as he was negotiating on an equal footing with the Chancellor Merkel. However¸ the Franco-German balance of power is unilaterally disturbed following the French downgrading. Nevertheless¸ both politicians will try to maintain the outward appearance of a balance of power. The next EU summit is going to take place at the end of January where obviously both announced their joint measures to promote growth and employment in Europe. In this way¸ the Merkozy-Duo wants to shows its strong co-leadership in times of the euro crisis. However¸ the downgrading by Standard & Poor’s does not only weaken Sarkozy’s position towards the chancellor Merkel but upsets the Franco/German solidarity which British prime minister David Cameron faced when he voted last year’s summit.