Europe at a crossroads

With the victory of Socialist Party candidate Francois Hollande over conservative President Nicolas Sarkozy in the French presidential race that ended on Sunday, a leftist party has taken power for the first time since 1981, when socialist candidate Francois Mitterrand was elected president. In the Greek general election on the same day, far-left and far-right political parties emerged as strong forces after the incumbent coalition of the New Democracy Party, and the Socialist Party failed to obtain a majority.

In the wake of the defeat of the ruling parties that supported austerity programs to weather their fiscal crises, conflict over stringent fiscal policies and economic growth is doomed to exacerbate. The tumble on most of the Asian bourses, including the Korea Stock Exchange, also reflected investors’ worries about increasing risk from Europe.

Hollande is of the position that Europe needs to adopt growth-oriented policies as it cannot overcome its fiscal crisis by belt-tightening policies alone. So he insists the European Union must revise the New Fiscal Treaty that was led by German Chancellor Angela Merkel based on the idea of tight-money policies. But Germany, which holds the purse strings, strongly opposes the revision because loosening up on austerity now will only trigger inflation without fundamentally addressing the root cause of the European problem. Though Germany exhibited a bit of a compromising attitude toward the amendment after Hollande’s election, it remains doubtful if EU members can easily strike a deal on the issue.

Greece faces a serious situation as extreme-left and extreme-right parties - which will play a critical role in forming a coalition government - demand that austerity programs be suspended and repayment of foreign debts be deferred, for fear of an inexorable dwindling of wages, pensions and welfare benefits. But that can possibly lead to a default of Greece and its secession from the EU if bailout programs stopped suddenly. Moreover, if the aftershock spreads to other European countries, it can wreak havoc on the world economy.

Germany and France - the two pillars of the euro zone - must keep the balance. Hollande must act prudently now that he is president. He must face up to reality and reconsider excessive commitments he made during the campaign. Germany, too, must look at a broader picture of Europe rather than speak for its own interests. The entire world is watching Europe at a crossroads.