Sarko’s euro tonic may not be the perfect medicine

It’s strange to think that Nicolas Sarkozy was once regarded as a Eurosceptic. At the end of France’s tenure as EU President in December 2008, Sarkozy told MEPs that “it would be a mistake to want to build Europe against the nation states”, adding that he was opposed to “European fundamentalism”. How times have changed. Sarkozy told colleagues at last month’s Greek debt crisis summit that he was “a federalist”, and today we learn (£) that Sarkozy believes that Eurobonds must be introduced to save the single currency. Angela Merkel disagrees, so Sarkozy will try to coax her round when the two meet on Tuesday. He will probably also seek to gain her agreement that the EFSF (the EU bailout fund) is extended, a long-term French goal.

It is striking that Sarkozy, a once proud Gaullist, now seeks refuge in the bosom of Jacques Delors’ euro-federalist dream. Cruel ironies are the speciality of the political gods and there was a wonderful symmetry about Delors’ appearance beside his daughter, Martine Aubry, the premier socialist presidential candidate, at a campaign event on Friday afternoon, while Sarko was prostrated before the markets.

The French President’s former principles have been degraded by economic events that now threaten to engulf France. As the Economist’s Charlemagne correspondent argues, Sarkozy is trying to extract the best deal for France, ensuring that its voice in Europe is protected. Central to his thinking is the observation that France cannot withstand these economic tempests alone; therefore, it needs the EU. He sees the EU as dysfunctional: decisions are impeded by the risible neoliberals in London, Stockholm and some areas of the emerging East. Therefore, the 17 states of the Eurozone must come together under what he has described as “economic governance”, or “the remorseless logic of monetary union” as George Osborne would say.

Sarkozy may well be right, but it is perhaps hubristic of him to trust so heavily in a political solution. France’s weakness lies in its budget, or so the markets and credit rating agencies think. The decision to introduce a temporary ban on short selling had an immediate positive effect on Friday: markets closed deep in positive territory, ending days of fevered unease and substantial losses. But it is much too early to say if this relief will be anything other than transient. As ever in the West, growth is the question to which there is no clear answer. The French economy is flat and the attendant risks of that fact are exacerbated by Sarkozy’s deficit reduction plan, which depends on a minimum of 2 per cent growth in 2011. The markets simply cannot see from where that is coming.

Would Eurobonds make their sight any clearer? Probably not. This is perhaps why Sarkozy is preparing emergency economic measures to be unveiled on 24 August. It will be interesting, from a British perspective, to see what, if anything, he has concocted as a Plan B.