financeguy
ONE love, blood, life
Merkel knows that Germany cannot walk alone by itself. Although Germany sells a lot to China and South America, Europe still is Germany's biggest market by far.
Merkel knows as well two other things:
1) The european construction was leaded by France with the support of Germany, and after the reunification, by Germany with the support of France. So, Germany depends on France's support.
2) Germany's superavits and healthy public accounts are the reflex of Europe's deficits. The more german's accounts get balanced and clear, the more the other countries' accounts have troubles. Many economists have already explained that well.
Europe's debts are unsustainable because Merkel insists that the ECB cannot work as a "normal" central bank, it cannot print money and create inflation because Germany has panic of Weimar's inflation, it cannot lend money directly to the States, it cannot regulate the markets independently.
I agree, certainly, that Hollande's proposal to reduce the retirement age are not going to happen in any world that approximates reality.
These are all valid points that you've made, but I think it's worth bearing in mind that the French and German bond prices have differentiated in recent months - in my opinion, it is not inconceivable to see Germany isolated, and justifiably, from their point of view, to see them removing themselves from the current exchange rate mechanism.