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Europe's chances of economic recovery lie in unity, not isolation

(Global Times)

08:22, July 17, 2012

A wave of political reversals across the eurozone sparked by a backlash against a German-led austerity drive has left the continent's economic revival rudderless. Francois Hollande's victory in France saw many countries that may have been skittish about standing up to the central austerity plan gain the confidence to do so.

Greece came perilously close to electing a leader that would have thrown out the country's bailout deals. Spain is being bailed out. Cyprus has been lambasted for having the audacity to turn to Russia for financial relief. These diverse reactions highlight one of the key lessons EU leaders have learned on this crisis. A central monetary union only works as long as the economic priorities of its member countries go in the same direction. This is no longer the case, and perhaps never was.

France's new Socialist government has maintained its election promises and announced tax rises worth 7.2 billion euros ($8.8 billion), aiming to plug a gaping hole in state coffers. Many are waiting to see how Hollande's policies will be met by the general public and by the rich they affect. Whether they succeed in shortening the 40 billion euros of debt that state auditors have announced may be pivotal for future EU economic policy.

Economists are grim about these prospects. They claim that France will lose many of its major entrepreneurs and millionaires to the UK. Others state that the more taxes are raised on the rich, the less money they bring in, given how skilled the top bracket at transferring their capital into less-taxable assets.

Optimists are crowing that Hollande is a new breed of leader: fiscally responsible and politically honorable. It seems some believe that if Hollande can negotiate this tightrope, keep opinion polls on his side, prevent the flight of capital and claw back France's deficit, this will be a vindication for growth over austerity.

Other governments will copy him, Germany's competitive edge will be reduced, and the EU will once again become a model of economic virtue, having brought back the single currency back from the brink.

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