Merkel blinks as Single Market advocate Mario Monti, not Francois Hollande, emerges as the man who might save the euro

By Phillip Souta

Man of the moment? Mario Monti arriving at the European Council - Photo: European Council

As the dust settles after the 20th European Council after the crisis began a few years ago, we are seeing the hints of where we may be at the end of the year.  Two things in particular are a bit like history in slow motion, that speeded up can indicate where we are really going.

First, Germany is finally starting to talk about the costs of a breakup domestically – this could be the long awaited signal that politicians there are going to start softening public opinion for the measures they’re going to have to take to keep the euro going.

Across the political spectrum, Wolfgang Schäuble, the German finance minister said break-up could cause a “shrinking of wealth”; Jens Weidman, President of the Bundesbank said that break-up would come with incalculable “costs and risks” and the leader of the SDP, Sigmar Gabriel, said a break-up would cause an “enormous economic recession.”

German politicians have been far keener to blame southern European countries for fecklessly driving the euro into the ground without acknowledging Germany’s ten year export boom would have been impossible under the Deutschmark, which would have made Germany’s capital good uncompetitive.

The second development is that southern European countries, led by Mario Monti of Italy rather than the perhaps still somewhat inexperienced Francois Hollande, stood up to Angela Merkel and refused to cooperate unless she moves towards greater mutualisation of debt.

She blinked first at the summit and left without even giving a press conference.  Mario Monti, backed by Hollande and Mariano Rajoy of Spain demanded that eurozone bailout funds be used to support eurozone banks directly, and got what they wanted.

If Mario Monti emerges as the leader of the group which confronts Merkel with the hard choices she inevitably has to make, that will be no bad thing for David Cameron.  As one of the most passionate defenders of the Single Market, he will be an important ally in making sure it is not undermined by the new structures.