Eurocrisis Escalates: Germany vs. France

As the European debt crisis continues to escalate, traditional allies France and Germany have begun to differ on how the European Central Bank should address the debt problems of Greece and others. Mercatus Center Senior Research Fellow Veronique de Rugy breaks down the causes of the split between the two countries in The New York Times' Room for Debate.

“The [Europe Central Bank] is a good role model for what central bank independence and price stability should stand for. Germany would like to keep it this way. France, on the other hand, wouldn’t mind if the European Central Bank printed money to make some of the spendthrift countries’ debt go away.

Their perceptions of the consequences of monetizing the Greek debt differ. It is well known that Germans hate inflation...The French, on the other hand, have no such fears.

With higher levels of debts and no will to reform entitlement programs, sooner or later France is likely to need a European Central Bank “bailout” to keep paying its bills (and French banks may also be in big trouble). The need for a rescue plan makes France more inclined to set a precedent. However, Germany, after 60 years of desperately trying to avoid inflation, is reluctant to pay that bill.”

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Veronique de Rugy

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy. Her popular weekly charts, published by the Mercatus Center, address economic issues ranging from lessons on creating sustainable economic growth to the implications of government tax and fiscal policies. She has testified numerous times in front of Congress on the effects of fiscal stimulus, debt and deficits, and regulation on the economy.