By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

For once euro zone leaders did the right thing, the very thing they have been unable to do throughout the euro crisis: shut up. Their nine-line communiqué to say nothing on the subject was the only sensible option after their informal dinner Wednesday night. The other alternatives would only have made things worse. And whatever the pundits’ or markets’ expectations may be, it’s better for the euro summiteers to keep mum than to pretend having the answer which only the Greeks can provide.

Greece’s euro partners would like the second Parliamentary election, to be held on June 17, to become a de facto referendum on membership of the single currency. But they can’t insist too much without appearing to interfere in the Greek electoral process. The zone’s leaders are most probably ready to offer some concessions on the bailout programme to show that the euro is not just about pain and punishment. But they can’t reveal their hands before the election, because the radical parties rejecting austerity might feel emboldened and demand more concessions ahead of the vote.

Meanwhile, euro zone leaders and the European Central Bank must brace for the worst-case scenario of a Greek chaotic euro exit. But they can’t publicly admit that they’re planning for it, because it could amount to a self-fulfilling prophecy, and because markets turn south every time a European official simply mentions the possibility of Greece leaving the monetary union.

So what’s to do? Keep calm and carry on planning for the day after the Greek election – which, as it happens, will be the first day of the G20 leaders’ summit in Mexico. That may be difficult in a 17-country glass house and a 24-hour news cycle. But euro zone leaders must prepare plans for either dropping Greece, or supporting it with a plan to boost growth in an aggressive way. Strains in Spain, or Italy, might force them to the podium. But silence, in the next three weeks, will be golden.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

With growth on the menu and Greece on their mind, François Hollande and Angela Merkel have reasons to dispense with the usual niceties for their first meeting. The French president chose to fly to Berlin to meet the German chancellor on the very day of his inauguration – and not simply because he wants to smooth over some of the rough edges of the electoral campaign. His trip is also an acknowledgment that there is a fire in the euro house: neither France nor Germany can afford to waste any time before trying to put it out.

The best thing the two leaders could say about Greece after their meeting is nothing. Merkel, because any utterance will only add fuel to the Hellenic conflagration. Hollande, because at this stage he could only mouth platitudes on the topic. But public silence should be matched by intense private conversation.

Both leaders are challenged by the new crisis. Hollande must go beyond the campaign rhetoric about the need for growth-friendly policies in Europe: the initiatives he has in mind are irrelevant to the immediate risk of a messy Greek exit from the euro zone. For Merkel, the challenge is to avoid making her rigid stance on Greek austerity the main obstacle to the formation of a new government in Athens.

A productive conversation would lead to an either/or agenda. Either the Greeks can at last form a government able to negotiate with its creditors – in that case France and Germany should design the outlines of a face-saving deal – or an agreement proves impossible and Greece finds itself outside the euro. Then a contingency plan must be ready.

A deal will be difficult to achieve if it creates a precedent for unhappy governments willing to renege on the commitments made in exchange for aid. But Merkel’s Social Democrat opponents, emboldened by their recent electoral victories, are asking for some growth-friendly policies themselves. So the chancellor might be willing to make some concessions.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Bundesbank keeps raising concerns about a possible surge of inflation in the euro zone. But the fears are premature at best. The European Central Bank hasn’t failed on that front. While the current 2.7 percent inflation rate is above the ECB’s official goal of “below but close to 2 percent”, it expects to be back on target in early 2013. The question is whether sticking to that stubborn 2 percent goal makes sense as recession threatens.

The ECB is keeping its key interest rate at 1 percent, much higher than the near-zero levels in the United States and UK. The economies’ near-term prospects don’t justify the euro premium. The euro zone’s gross domestic product will shrink by 0.3 percent this year, according to the latest International Monetary Fund forecast, compared to 2.1 percent growth in the United States and 0.8 percent in the UK.

The monetary purists at the Bundesbank fear that lower euro rates – or even too many months at the current level – will fuel inflation in Germany. It’s possible, even though in the year ended in March, prices rose by 0.4 percentage points less in Germany than in the euro zone as a whole. Faster growth in Europe’s largest economy could reverse the gap this year, especially if German workers succeed in their demands for higher pay after a decade of strict wage discipline.

Yet higher German inflation shouldn’t be feared, but hoped for. It would make looser monetary policy more effective where help is most needed. Prices are rising slower than the average in troubled euro countries like Greece, Spain or Ireland. Higher inflation in Germany would help them regain some competitiveness. And it would help rebalance the euro zone economy, after a decade when German exporters gained market share throughout the region.

Mario Draghi, the ECB’s president, is unlikely to say so, but in an ideal world he would: inflation in the euro zone is not a threat. And more of it in Germany could be good for Europe.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own

The French have chosen a socialist president without any experience of executive power and little taste or knowledge of international matters. When one considers where the certified “experienced” leaders have led Europe in the last three years, this shouldn’t be much of a worry. But if newly-elected François Hollande thinks he can plan for a few months of learning on the job, the situation in Greece is a pressing reminder that he should cut the training period short. 

Hollande campaigned on a programme of moderate reform and little pain, promising to raise taxes for any extra spending he advocates to reduce France’s growing inequalities. His apparent determination to ignore the French economy’s most pressing problem – its lack of competitiveness – is only balanced by the centrist, moderate views he harbours on most things. This has led some to hope that reason should ultimately guide him if and when a serious crisis strikes. 

The new French president’s first foreign trip as president-elect will be Germany to visit Angela Merkel. This shows at least that he has the right sense of priorities. The new French leader called during his campaign for more growth and less austerity. As long as he sticks to his promise of putting France’s finance back in order, this shouldn’t be much of a problem with Berlin. The German chancellor, politically weakened by her own electoral setbacks, should accommodate him. Her foreign minister is already talking about working on a growth pact with France – though what he means by that remains fuzzy. 

François Hollande has become the symbol of a new phase in the euro crisis created as governments start talking about the future – growth – instead of solely focusing on the past – when austerity was deemed as the only solution. But his leadership and political acumen will be tested before he sets out his detailed ideas for France. Hollande, as head of the second-largest euro zone lender country, will have to explain what if anything he suggests for Greece – and for other troubled euro members. How does he propose to boost growth in cash-strapped economies? And what does he suggest doing in the short run? That’s when he will discover that his new job is not just about the French.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

BNP Paribas and Société Générale are nearing the end of their crash diets. At least, that’s what the French top banking duo hope after a first quarter in which they shrank their balance sheets following last year’s euro zone-induced funding squeeze.

BNP, France’s largest bank, says it has completed 80 percent of its asset disposal programme, which will be over by the summer. In the rush to deleverage and refocus on euro-denominated funding, both banks have offloaded a mixture of legacy assets, loans and corporate and sovereign bonds. Some buyers have even paid cash, as in the sale of BNP’s majority holding in real-estate group Klepierre, which allowed the bank to book a handy 1.5 billion euro capital gain.

Both banks can still rely on strong retail arms that show no signs of suffering from the euro zone’s economic woes – at least not yet. SocGen is arguably less vulnerable to a euro-wide recession if it eventually hits, as the lender is less exposed to the zone than its larger rival. Strip out the Klepierre sale, and both banks moved in sync during the quarter, with revenue down 6 percent at BNP and 5 percent at SocGen. Net profit at both banks fell by roughly 20 percent.

BNP, however, has a head start when strengthening its capital buffers. The bank says it will have reached a core Tier 1 capital ratio of 9 percent – assuming the full implementation of new Basel III rules – by January 2013. Under its current assumptions, BNP will get there this June. SocGen reckons its core Tier 1 ratio will be in the range of 9 percent to 9.5 percent at the end of next year.

Their association with the euro zone will continue to afflict BNP and SocGen for some time. And they may seriously suffer if France finds itself at the centre of the storm after its presidential election. Both banks trade at a fraction of their book value. But on that metric SocGen trades at a 34 percent discount to BNP. There’s no obvious reason for the discrepancy, save for the contrast between BNP’s traditional, robust model and SocGen’s sexier but more troubled past. Even for slimmed-down banks, reputation still matters.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Is it still possible to mention the word “growth” without becoming a hostage in the French presidential campaign? Mario Draghi, the European Central Bank president, has been hijacked by the French socialist party because he has called for a euro zone “growth compact”. Presidential candidate François Hollande sees it as a sign that his ideas are gaining ground. But Draghi’s statement to the European parliament wasn’t a seismic shift. More important, what he means by growth compact has nothing to do with what Hollande plans to do if elected.

The upcoming conflict within the euro zone is not, thankfully, whether growth is good or not. Everyone agrees it is. There is also unanimity on the need for fiscal discipline. What sets Hollande on a collision course with Germany, the ECB and most of France’s euro zone partners is his belief that growth will come from the rest of the world while France avoids the painful domestic reforms which are underway in most of Europe.

France has the highest hourly labour costs of any major European economy, according to EU statistics, updated this week. They have risen 39 percent in the last decade, twice as fast as in Germany. True, that data doesn’t take into account productivity, which is high in France, but the deterioration in the current account shows the country’s competitiveness has deteriorated.

If Hollande keeps thinking that this is not a problem, or if he thinks it is but feels obliged to lie to the French about it, there’s no way to find common ground with Mario Draghi. Even though the expression “growth compact” may sound new, there’s nothing there that hasn’t been said, over and over, by central bankers: governments must reform, and the longer they wait, the more painful it will be.

Euro bonds, big investment programmes and German stimulus would all help, but they will not spare France the pain of reform. If Hollande the candidate keeps ignoring that reality, Hollande the president will hit the wall head first.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Euro zone members won’t meet their fiscal targets, but that doesn’t mean they should all force themselves to be even more austere. This is the message that the International Monetary Fund is sending to Europe’s troubled economies. Both disciplinarian central bankers and populist politicians should take note. Austerity remains a must. But too much, too fast will be lethal.

Spain and France illustrate the point the IMF is trying to make. Both should have budget shortfalls next year that will be much higher than forecast, the Fund says. Both countries were supposed to shrink their deficits to 3 percent of GDP in 2013. But according to the IMF, both will miss their targets – Spain’s deficit will reach 5.7 percent of GDP, while France’s will stand at 3.9 percent.

The misses should lead to different conclusions in Madrid and in Paris. Spain’s target was absurdly unrealistic. Since the deficit stood at 8.5 percent in 2011, the target could only be met if country cut spending or raised taxes by a combined 5.5 percent of GDP over two years. Spain needs understanding from its euro zone partners: flexibility is needed to implement painful reforms that need political support.

For France, on the other hand, the IMF report should serve as a wake-up call: more needs to be done. Nicolas Sarkozy and Francois Hollande, the main presidential candidates, seem impervious to the need to seriously shrink the public sector. In a country which hasn’t balanced a budget since 1976, cutting public spending – a euro zone record at more than 56 percent of GDP – is in and by itself a structural reform.

This government-heavy economy sets the country apart from other euro zone members. The IMF forecast shows that Paris can’t simply wait for better days, especially with the weak GDP growth expected this year (0.5 percent) and next (1 percent).

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Keep the mystique of the Rothschild name while managing it like a luxury brand: this seems to be the goal of the investment bank’s decision to fold its French and British arms into a single, listed entity.

In one sense, Rothschild’s shareholding structure is only catching up with operational reality. The cross-channel merger has been underway since 2003, when current chairman David de Rothschild added the leadership of the British bank to his role at head of the French arm. But the merged group’s limited partnership structure will also guarantee an airtight family control, regardless of who takes over as dynasty chief in a few years’ time.

Under the proposed deal, Paris Orleans, the family’s French-listed entity, will buy all the shares of RCB, the French bank, and most of those of RCH, the Swiss-based group that owns the British assets. This will dilute the family’s ownership of Paris Orleans from 58 percent to 48 percent of the shares – hence the changes of statute that will guarantee the Rothschilds control the group, whatever the size of their holdings.

In the French system of “commandite par actions”, the limited partners – akin to public shareholders – basically have only the right to remain silent and receive dividends. Meanwhile the general partners decide and rule. Due to the change in Paris Orleans’ bylaws, Rothschild has to offer other shareholders the opportunity to sell. But its lowball offer of a 4 percent premium suggests the family prefers minorities to hang on.

As new generations disperse the family shareholders, the current Rothschilds may have wanted to protect against the risk of possible dilution or future hostile bids. The latest reorganisation means they have no need to worry. David de Rothschild will turn 70 this year. Each of the new bank’s co-CEOs – Nigel Higgins and Oliver Pecoux – can hope to have a shot at replacing him. But David’s son Alexandre, 30, is also being groomed for higher responsibilities. Whatever the name of his successor, David has made sure control remains exclusively with the family.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The failure of the Vatican bank to comply with the basic rule of the Sacrament of Penance is odd. The Holy See’s financial arm has been seeking absolution for past sins for two years, but remains reluctant to confess to what it did wrong. Of all institutions, it should understand that one cannot go without the other.

According to Italian newspapers, JPMorgan Chase is closing the account of the bank formerly known as Istituto per le Opere di Religione (IOR) because of concerns about a lack of transparency. The move comes a few weeks after the U.S. State Department added the Vatican to the list of countries it considers vulnerable to money laundering.

JPMorgan’s move is no administrative tidying-up: some 1.5 billion euros is reported to have passed through the account in the past 18 months. Yet considering the reputational beating that investment banks have taken in recent years, it’s refreshing that one of them is concerned about being tainted by its association with the Vatican.

The latest stigma may look unfair on the Vatican bank’s new management team, installed two years ago with the explicit task of breaking with its shady past. After all, the lender has wrestled for thirty years with its involvement in the fraudulent collapse of Banco Ambrosiano, Italy’s largest private bank, in which it held a small stake.

The Vatican wants to be added to the so-called “white list” of states that comply with international agreements designed to combat tax fraud and money laundering. This might be easier if the Holy See’s higher authorities decided to come clean about the bank’s past shenanigans. But recently leaked documents appear to show that Secretary of State Cardinal Tarcisio Bertone didn’t approve of the new management’s hard line on transparency and accountability.

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There may be some residual skirmishes, but the rear-guard resistance against the euro zone “fiscal compact” doesn’t stand much of a chance.

The treaty’s ratification is certainly looking problematic in some countries. Ireland will put it to a popular vote, the Dutch Labor party – whose votes the minority government needs – threatens to oppose it, and French socialist presidential contender François Hollande wants to push for a substantial “renegotiation” if he is elected. More generally, parties from the left across Europe are objecting to legislation they see as dictated by the defenders of strict fiscal orthodoxy.

Markets so far don’t seem to worry about the possible risks of the pact falling apart, and with good reason. The treaty needs the backing of only 12 of the 17 euro zone members to come into effect. If France was to be among the refuzniks, the compact would certainly lose some of its potency and much of its political meaning. But the treaty’s main requirements – enhanced fiscal monitoring, and sharper sanctions – were already fully enforceable in European law. At the urging of Germany, euro zone leaders simply agreed to enshrine those rules into a more solemn form.

The bigger problem may be that objections to ratification will be seen by the austerity zealots of the euro zone – the German government and the European Central Bank – as justification for fiscally irresponsible governments to resume their old ways. But such fears are overdone. France’s yields didn’t budge when the country was downgraded by Standard & Poor’s. But Spanish and Italian yields, still hovering around 5 percent for 10-year bonds, are a powerful reminder of the price to pay for carelessness.

In reality, it is probably time for European Union authorities to adopt a more subtle approach, considering the risks that the current recession, coupled with blind austerity, sends the region’s economy into a tailspin. The flexibility shown for Spain last week was welcome. The parties and governments who are calling for more emphasis on growth are right. But as long as the ayatollahs rule the day, they stand little chance of being heard.