WSJ: - After the new French president lashed out at Ms. Merkel's austerity policies during his election campaign, their first meeting commenced with a handshake rather than the pecks on the checks she traded with Mr. Sarkozy. And while Berlin has sought to play down the perceived rift with Paris, Mr. Hollande's decision to lower the legal retirement age for some workers put France back on collision course.
Of course other than Germany, the Eurozone nations'
economies have deteriorated (including
France). Italy
is in deep recession, and Spain is living from auction
to auction (the nation has to sell 2, 3, and 5-year
government notes tomorrow). The Eurozone's economic
landscape has changed considerably since the beginning of
the year. And the disparity is adding to charged political
frictions within the area.
WSJ: - Not only the personalities have changed. Since France's credit was downgraded in January, Germany has been the only economy among the euro zone's big four still branded triple-A by all major rating agencies. That has put Ms. Merkel in a lonely position, painted not only as the chief architect of the currency union's crisis strategy, but at the helm of the country whose economic heft provides the main scaffolding still holding it up.
The widening divide in the Eurozone does not just involve
Germany. This post for example describes
the Italy - Spain high level political spat that took place
recently. Barclays Capital has put together a collection
of quotes from Eurozone's leaders that shows the
intensifying disagreements and political pressures they are
facing.
Source: Barclays Capital (click to enlarge) |
This deepening political divide does not bode well for the Eurozone's ability to develop and fund the so-called "firewall" that would reduce the risks of Spain or Italy taking the Eurozone to the brink. That's why the recent lull we've had in the markets is likely to be short-lived, as hopes of much needed decisive solutions are quickly dashed.
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