Welcome to the new job, Monsieur Hollande

The new French president Francois Hollande wll meet with Angela Merkel tomorrow.

Why does so much happen at the weekend these days? A week ago the established order was overthrown in both France and Greece. This weekend the Greek political system moved from ‘critical’ to ‘terminal’, German voters showed that they’re as angry as the rest of us, and the people of Spain came a step closer to open revolt.

François Hollande takes the reins in Paris today at a grand inauguration ceremony in the Champs Elysées. He must be wondering what he’s let himself in for. His first act as President will be to fly to Berlin for talks and a working dinner with Chancellor Merkel. They shouldn’t be short of conversation.

Chancellor Merkel will meet Francois Hollande in Berlin. Credit: Reuters

It was only a few weeks ago that the leaders of the Eurozone were confidently declaring that the worst of the crisis was behind them. Yesterday from the august portals of the New York Times (via its nobel prize winning economist Paul Krugman) came the prediction that the end of the Euro itself could be weeks or months away. Wow.

Certainly Greece’s exit seems closer than it ever has. There will be one last attempt last night to stitch together a Government committed to living within the budgetary constraints set by the rest of the Eurozone. It will probably fail.

The far-left party Syriza will now, at least, turn up to the meeting, but there seems no chance of it compromising and thus committing electoral suicide. Its leader, Alexis Tsipras, seems to have worked out that when 68% of the Greek electorate voted against the current austerity programme they meant it. His (once) tiny party came second on a promise to end austerity. If he reneges on that with days of the election, he’s toast.

Alexis Tsipras has rejected talks on a new Greek coalition.

New elections on June 17th seem almost inevitable. If the Greeks take fright and pull back from the abyss, there may just be a chance for the country to cling on a little longer. If, as polls suggest, they are going to tell their leaders ‘we meant what we said’, then Euro exit is surely inevitable.

Which would be painful for the Greeks, but maybe even more so for the Spanish, because the contagion would spread rapidly across the Mediterranean. On Friday afternoon Brussels predicted that Spain is going to miss its deficit reduction targets by a mile, both this year and next. In fact, the recession is playing such havoc with Spain’s finances that in 2013 all the swingeing austerity measures currently being imposed will reduce the deficit barely at all (from 6.3% of GDP to 6.2%). How much longer are the Spanish going to put up with a policy that is damaging, painful, and at the same time self-defeating? Judging by the 70,000 people on the streets over the weekend, not long.

It’s a year since Los Indignados lit a fire under the ‘occupy’ movement with their tent city in Madrid’s Pueto del Sol. The Spanish police are determined that no future protest is going to be allowed a permanent home again, but they may have their work cut out.

And while they’re trying to keep the streets clear, Prime Minister Mariano Rajoy is fighting his own battle with regional Governments across Spain, imposing central Government control in order to stop them spending. Both the social and the constitutional order are fraying; it can’t be long before something gives.

A thousand miles away in Germany’s most populated state, North Rhine/Westphalia, Angela Merkel’s CDU party were winning barely a quarter of the vote, their worst performance in the state since the war. Germans, too, are unhappy at what’s going on: the so-called ‘Pirate Party’ won almost 8% of the vote on an anti-bailout ticket. Their objection is that too much of their hard-earned money is going to the feckless Greeks. It was a shot across Merkel’s bows, not least because she needs opposition support if she’s going to able to ratify her own fiscal union treaty in the Bundestag.

As he looks out of his new office window in the Elysée Palace, the picture in France won’t look too cheerful either. Even before he’s taken over, Brussels has warned Hollande that France is on course to miss its deficit reduction targets next year by something like €24bn. This year it should manage to reduce the deficit to 4.5% of GDP, but like its southern neighbours, a slowing economy will play havoc with receipts to the French treasury, meaning a deficit of 4.2% in 2013, way above the 3% laid down in the fiscal treaty.

Hollande has promised to ease austerity and yet still cut the deficit. If he’s to abide by the new rules, then further spending cuts or new taxes are going to be required, which was not exactly what he was promising just a few days ago. And if he doesn’t Brussels will threaten heavy fines. Welcome to the realities of office, François.