Barack Obama, President, talked with David Cameron, Prime Minister, and Angela Merkel, Chancellor, at the 36th G8 summit in Muskoka District Municipality, Ontario Province on June 25, 2010. (Photo credit: Wikipedia)

This is an outstanding article by Shahin Valee, published as an op-ed in the NYT. The senior economist is a former advisor to the French economy minister and the president of the European Council.

via How the Greek Deal Could Destroy the Euro – Shahin Vallee – op-ed – The New York Times.

The article highlights how Germany has gone too far in forcing a Greek deal. It questions the future of the Euro on Germany’s terms. It hints that France, Italy and Spain are larger and stronger than Germany. Most importantly, Germany’s austerity medicine is not politically popular in Southern Europe, where there are important elections on the horizon.

There are only a limited number of options:

1. Do nothing – this is not workable and austerity will increasingly marginalize politics across Europe, like in Greece
2. Loosen the shackles of the Euro and inflate Germany – this is not politically acceptable to Germany’s conservative right-wing
3. Orderly break-up of Euro, managing the downside risks of countries like Greece leaving the Euro – this option has severe economic and political risks
4. Disorderly breakup of the Euro, this is the melt-down scenario, with chaos reigning supreme

Ultimately, it probably comes down to the will of one person, Germany’s Chancellor, Angela Merkel. Does she want her legacy to be destroying post-war European stability.

There are now at least three power groups in Europe, supported by Germany, France and the UK respectively?

This leads me to an open question:

Will David Cameron be able to exploit to the UK’s advantage the emerging policy gaps between France and Germany?

Thoughts?