Friday 13 December 2019

Leaders have to restore faith

Yesterday the European crisis came close to Chancellor Angela Merkel's door when her party, the Christian Democrats, suffered a devastating defeat in the North Rhine-Westphalia state elections.

These were no ordinary elections.

The states have considerable independent powers in the German federal system. North Rhine-Westphalia is the most populous state, and is of immense economic importance. When Dusseldorf speaks, Germany listens.

This time, Ms Merkel must listen to a simple message. She has been rejected by the kind of citizens so often held up as exemplars of her country's thrift and prosperity.

Power will continue to be held on the Rhine by the Social Democrat-Green coalition which scored a majority of the votes.

Other countries, meanwhile, came closer to breaking point.

Hopes dimmed -- they were never bright -- for the formation of a coalition government in Greece. In Italy, plans were mooted to send soldiers to guard tax offices. While fears grew of a Spanish banking catastrophe, hundreds of thousands of angry demonstrators filled the centre of Madrid.

All these events were interlinked. They cannot be dismissed as mere protests against austerity. They amount to a cry of anger at the manifest failure of national governments, and Europe as a whole, to get the debt crisis under control.

And that gives special meaning, perhaps unique meaning, to the imminent meeting between Ms Merkel and the incoming French President, Francois Hollande.

Nobody in authority anywhere supposes that there can be any easy or simple solution to the crisis. The shocking question now posed is whether there is any feasible solution. If anyone has an answer, it is Mr Hollande.

He is not seeking a renegotiation of the "stability" treaty, the European fiscal pact. That was never realistic. Instead, he demands an expansion of it with a view to stimulating economic growth and making some impact on the appalling unemployment figures in Spain and Greece -- and Ireland.

This is a task of enormous difficulty and magnitude. It must entail changes of a fundamental nature, like banking reform. Even if undertaken with the greatest goodwill and expertise, and with adequate funding, its success cannot be guaranteed.

But it is all that stands between Europe and potential collapse.

Whether or not Greece defaults on its debts -- and arguably it has already defaulted -- its leaders are in a very poor position to counter a major political crisis. The parliamentary elections showed the extent to which the voters had lost faith in them.

That could happen in other countries also, even the richest and most stable.

The Merkel-Hollande meeting, therefore, is about much more than an economic package. It is about restoring trust in the system.

They cannot afford to fail.

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