Europe seeks its chance to bring Germans down a peg or two

Once unthinkable, now Angela Merkel happily interferes in French presidential election

Column LAST UPDATED AT 07:26 ON Tue 13 Mar 2012

IS THE euro finally out of the woods? Few would say that as yet, but, with the completion of Greece's second big rescue package last week, the consensus does seem to be that it has at least won some valuable breathing space.

As the financial crisis rolls on, however, it is not just the Eurozone's economies that are fraying at the seams. So are the political checks and balances, arrangements and alliances on which, for more than half a century, the entire European edifice has depended.

To see what I mean, consider Finland. The chances are you have not done so before, for the simple reason that up to now the Nordic nation has never played much of a role in European affairs.

Because of the euro crisis, that is no longer the case. Together with Germany, Holland and Luxembourg, Finland is one of just four Eurozone states to have managed to retain its AAA status with the rating agencies. And as a triple A, when Greece's fate was being decided, it got a seat at the top table alongside – or even ahead of - established heavyweights like France.

To call this cock-eyed is putting it mildly. European politicians loathe the rating agencies, whose judgments they blame for exacerbating the crisis. Yet it is on their say-so that once mighty France, now a mere double A, has been reduced to second fiddle, while the two other big euro countries, Spain and Italy, find themselves sent to sit on the naughty step.

It is a prime example of how the euro's problems have destabilised not just the economic equilibrium of the continent but also its politics. As power has shifted to Berlin and its allies, even the European Commission has seen its role eclipsed. The days when Germany, mindful of its difficult history, trod carefully with its neighbours are long gone.

It is German tax inspectors, 160 of them, who are being readied for deployment in Greece. More remarkably still, Angela Merkel will shortly be campaigning in the French elections alongside the incumbent, Nicolas Sarkozy, against his Socialist challenger, Francois Hollande.

Such blatant interference in the internal affairs of even a close partner would previously have been unthinkable. Yet according to Der Spiegel, Chancellor Merkel's CDU headquarters is "expending a similar amount of energy on the French presidential election as it would on an important regional election in Germany".

But even as Germany and its triple A group appear to be carrying all before them, the worm is beginning to turn. Hollande's pledge to reopen the German-inspired new European treaty is a cause of particular concern to Merkel. In Spain, too, trouble is brewing.

Ten days ago the newly elected Prime Minister, Mariano Rajoy, announced that Madrid will no longer adhere to the budget target his predecessor had agreed with the EU – and signed off with Berlin. Pointedly, he labeled the move a "sovereign decision" and made the announcement without any prior consultation.

The most significant development of all, however, has been at the European Central Bank – the very heart of the euro project. Since Mario Draghi, its newly installed Italian bank president, pumped a trillion euros of cheap loans into the continent's ailing commercial banks, many have credited him with averting a Lehman style meltdown of the entire system.

But at the Bundesbank they are horrified that an Italian has effectively introduced quantitative easing by the back door. They are even more horrified that there is nothing they can do to stop him.

And that is really the nub of it, not just for the Bundesbank but for the German establishment in general. Last year, as Europe and the euro were gripped by panic, they took command. But the other big eurozone countries, France, Spain and Italy, never really accepted that the single currency should be run by Germany - and certainly not at their expense.

Mainly thanks to Draghi the outlook for the euro does seem better than for some time, continuing problems in Greece and Ireland notwithstanding. Rather than consolidate Berlin's dominance, however, a period of comparative calm on the currency front could be just the opening the other big players need to reassert themselves politically.

All the signs are that if they get the chance they will take it – especially if Hollande wins in France. Germany will not like it, but will it fight back? Over the next six months we will find out. In the meantime, Finland should enjoy its place at the top while it lasts. ·