French Support for Greece Exacerbates Europe’s North-South Divide

French support for Greece raises the prospect of a Mediterranean bloc resisting Germany.

British prime minister David Cameron, French president François Hollande and German chancellor Angela Merkel speak before a World War I memorial ceremony in Ypres, Belgium, June 26, 2014
British prime minister David Cameron, French president François Hollande and German chancellor Angela Merkel speak before a World War I memorial ceremony in Ypres, Belgium, June 26, 2014 (Bundesregierung)

France’s support for the new Greek government’s demands for debt relief exacerbates Europe’s north-south divide and could have implications for Britain’s future negotiations with the European Union about changes in its membership.

Although France’s finance minister, Michel Sapin, wouldn’t go as far as supporting Greece’s call to write off part of its debt, he did say on Sunday his government was prepared to “support Greece.” Sapin also said Greece’s request to renegotiate the terms of its bailout was “legitimate” and he urged a “new contract between Greece and its partners.”

Sapin made his statements after meeting with his new Greek counterpart, Yanis Varoufakis, in Paris.

Varoufakis said on Friday he wanted nothing to do with the “troika” anymore: the representatives of the European Central Bank, the European Commission and the International Monetary Fund who have supervised the implementation of Greece’s bailout. Varoufakis prefers to work directly with other European countries, perhaps thinking they would be more lenient.

Troika monitors have repeatedly found Greece falling short on its commitments. The country was supposed to reduce public spending and liberalize its economy in exchange for €240 billion in financial support from other European Union countries and the International Monetary Fund.

The new coalition government in Athens, composed of Varoufakis’ and Prime Minister Alexis Tsipras’ far-left Syriza party and the right-wing Independent Greeks, wants to cancel the spending cuts and reverse some of the structural reforms the country has done.

Days after winning an election last week, Tsipras rolled back the privatization of Greece’s largest seaport and its public power utility. He also wants to rehire public workers, raise the minimum wage and reduce Greece’s debt which was equal to 175 percent of economic output in 2013.

Most of Greece’s privately-held debt was restructured in 2012. Some 90 percent of its debt is now owed to official creditors, mainly other eurozone governments.

Northern European countries, including Finland, Germany and the Netherlands, have rejected Greece’s demands with Chancellor Angela Merkel saying she does not “envisage fresh debt cancellation” the Netherlands’ Jeroen Dijsselbloem, who chairs the meetings of eurozone finance ministers, urging Greece to stick to its commitments. “Taking unilateral steps and ignoring previous arrangements is not the way forward,” Dijsselbloem told Varoufakis last week.

France siding with Greece raises the prospect of a Mediterranean bloc resisting Germany and its allies in their push for austerity and liberalization — including getting a free-trade agreement with the United States. Greece said over the weekend it would block the treaty; France already had reservations about liberalizing transatlantic trade.

A perceived victory for Greece could especially benefit Spain’s far-left Podemos party which polls predict will defeat Prime Minister Mariano Rajoy’s conservatives in elections this year.

Many Northern European leaders have promised their voters the money lend to Greece will be repaid in full. If they walk back those promises, it would probably raise Euroskeptic sentiment in the north where support for the single currency is nevertheless higher than in the periphery of the continent.

German leaders should be less willing to do a deal with Greece’s Syriza-led government if they fear concessions will trigger anti-austerity demands in other countries as well — including France, the second-largest economy in the eurozone, and Italy, the third-largest. Both got another extension from the European Commission to bring their deficits in line with the bloc’s 3 percent treaty limit this year.

It should also make the Germans more willing to make concessions to Britain’s prime minister, David Cameron, who wants changes in his nation’s membership before calling a referendum on whether to stay in the European Union or not by 2017. Generally supportive of budget consolidation and liberal economic reform, Cameron’s Conservatives are allies the Germans can now ill afford to lose.

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