Macron, Europe’s centrists are out of good options

France’s political impasse reflects an economic conundrum that is insoluble under the present European construction. After four years of pandemic-induced fiscal laxity, the eurozone’s rules are back in force, demanding of Paris a wave of severe austerity that no political party, including President Emmanuel Macron’s, can or would want to implement. This is the main reason Macron called a parliamentary election that he knew he would lose.That the European Commission, with the tacit support of the European Central Bank, will impose painful austerity on France is indisputable for one simple reason: Germany is already doing the same to itself, even though its budget and debt are far smaller than France’s.Pushed by the German Constitutional Court’s strict adherence to the so-called debt brake, which caps annual deficits at 0.35% of GDP, Chancellor Olaf Scholz and Finance Minister Christian Lindner have set Germany on a harsh austerity course that will most likely end their political careers. They have done so to eliminate a modest deficit of 2.5% of GDP at a time when their country desperately needs major infrastructure investment. How can they explain to their own parties that they will tolerate a French deficit of 5.5% and rising? They can’t, so they won’t.France can expect a form of pressure straight out of the European Commission and ECB’s euro-crisis playbook. Negative comments from Brussels will begin to worry holders of French bonds. The interest rate that France must pay to roll over its €3.1tn ($3.4tn) public debt will rise slowly, as will anxieties about whether the ECB will come to its assistance. Already, in a comment that met with a chorus of denunciations in France, Lindner warned the ECB not to make use of the recently announced "transmission protocol instrument” (TPI) to bail out the French. It is highly unlikely that the German finance minister did not understand his comment to be anything but the start of a self-fulfilling prophecy.The TPI bailout scheme was announced by the ECB to settle post-pandemic nerves. It is designed to apply to countries, like France, with excess deficits, but only if they accept austerity measures dictated by Brussels.What makes it politically toxic in France is the fact that even if a new government were to go along with the new austerity drive, it is not clear that France’s fiscal balance would follow a smooth path back to the EU-specified limits. In other words, any compliant French government faces a terrible prospect: political chaos (since austerity is vehemently opposed by two-thirds of the National Assembly) with no guarantee of a return to fiscal probity (since austerity depresses growth).The writing was on the wall well before the European Parliament elections in June. Their outcome convinced Macron that only two political paths are consistent with the EU’s current institutional setting, which he previously tried, but failed, to change. One path would be to do to his main rival, Marine Le Pen, what was done to Alexis Tsipras, the former leader of Syriza in Greece, in 2015: allow her to form a government that would then be forced to choose between clashing with the EU or acquiescing – with Macron edging Le Pen toward the latter.The second path was the one that the electorate opted for: A four-way split parliament that, under the burgeoning fiscal pressures, will eventually yield a grand coalition comprising Macron’s party, the rump Republicans, and anyone from within the left-wing New Popular Front who is willing to part from Jean-Luc Mélenchon’s France Unbowed. (Another, worse option is a technocratic government whose budget would be imposed by presidential decrees.)Even if all this works out for Macron, he will be blamed for austerity-induced discontent. Le Pen will claim that an undemocratic president stole her victory, and her own presidential campaign will gain momentum. The success of Macron’s best-laid plan may transform his legacy from that of a populist slayer to that of an arrogant president who paved the way for the ultra-right to storm the Elysée.Why are France’s elites so short of decent options? The answer was delivered on March 23, 1964, by Kurt Schmücker, West Germany’s economy minister, to Valéry Giscard d’Estaing, his French counterpart, when the latter proposed an immediate monetary union between France and Germany. Shocked, Schmücker tried to warn d’Estaing that he was, unwittingly, proposing that France forfeit its sovereignty over the French budget. He was right. Why would Canada ever share a currency with the United States – or New Zealand with Australia – despite the two countries’ deep economic and cultural ties?However hard Europe’s elites try to dismiss this reality, they cannot. A monetary union is only sustainable between economies with similar trade balances and similar levels of capital utilisation. A monetary union between Germany and the Netherlands would be sustainable – though not necessarily useful – because both have large trade surpluses and economies where capital use is large and uniformly distributed across sectors. Germany and France, however, are like chalk and cheese.Last May, a typical month, France’s trade balance was €8bn in the red, whereas Germany had a surplus of €25bn. Similarly, while France has some highly advanced industries, its economy remains divided between cities and rural areas, with the latter typified by high labour, and low capital, intensity.There are three ways that such dissimilar economies can remain within a single market. The first is through a proper federation built on a fiscal union – the path that Macron invited the Germans to take, to no avail. The second option is a gradual currency devaluation for France – a path that Macron and the rest of the political centre have sworn not to take. That leaves the third option: permanent austerity, which is the root cause of today’s political impasse.It is a grim irony that by refusing to bargain for a federal solution, using the second-best option of a return to the franc as his backup plan, Macron has pushed the political centre toward its worst option, substantially increasing the likelihood of a Le Pen presidency in the near future. — Project Syndicate• Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.