With the ECB poised to take additional steps down the unorthodox monetary policy route, financial and economic forces are as potent as ever.  However, there is a subtle shift taking place that few seem to recognize. It is the re-emergence of non-economic/non-financial issues. 

Since the Great Financial Crisis began, and especially since the emergence of the European debt problems, economics have been paramount in Europe. Even political developments were understood in relation to the economic and financial problems.  

The refugee challenge began the new dynamic, and it was augmented dramatically by the terrorist attack in Paris. Political considerations have moved into ascendancy, and it will likely have far-reaching implications. When the dominant issue is economics, Germany holds sway. The re-emergence of political issues, however, illustrates the one-dimension of Germany’s leadership. Perhaps one of the reasons it does not act as a hegemony (putting long-term strategic goals ahead of narrow short-run self-interest) is that it is not really. It is simply a  dominant economic power. As Kissinger once quipped, “Pity Germany. Too big for Europe and too small for the world.” 

France has been unable to keep up with Germany’s economy prowess. This is the heart of the governance challenge within Europe. France was too uncompetitive to fully express the interests of the debtors in Europe, and this allowed the creditors, led by Germany, to largely drive the policy response to the debt crisis.  

However, the war against ISIS has not changed the underlying economic situation, but it has changed the political situation. Hollande has driven home this point by declaring that the security pact trumps the stability pact. France has not met is budget targets since 2007, and has been given several rounds of forbearance. The Dutch Finance Minister and Eurogroup head Dijsselbloem, who was so firm about Greece, now say that France’s fiscal efforts are “broadly compliant” with EU.