Hollande holds the key to Merkel's euro plan Germany believes the long-term future of the single currency rests with France link Join a conversation about Germany and the talk is soon about France. The present dynamics of Europe are shaped by German hesitation and French weakness. These postures are connected. The Franco-German motor ran out of steam a while ago but, seen from Berlin, nothing much can happen unless the two nations are travelling in the same direction. Berlin wants to deepen other relationships. A few years ago, Angela Merkel thought Britain might be drawn into a troika. The German chancellor gave up on the idea when Britain's government decided to detach itself from EU affairs. Poland has taken Britain's place in German diplomacy. But the partnership with Paris remains an indispensable if insufficient condition for progress. Europe and the euro have not loomed large in the post-election negotiations between Ms Merkel's Christian Democrats and the centre-left Social Democrats. The future of the single currency has been parcelled off to a subcommittee of one of a dozen groups discussing the terms of a grand coalition. This does not imply the euro has been pushed to the margins; rather that the big arguments between the two parties lie elsewhere. Philip Stephens As I understand it, the chancellor's office has submitted to the coalition negotiators four possible paths for the eurozone. All presume that the EU is an essential anchor for German prosperity and security and that the union would not survive the demise of the euro; and all depend on good working relations between Ms Merkel and François Hollande, the French president. The first of the options might be described as "muddle through." The eurozone's drive towards banking union and mutual economic oversight would remain within the existing legal framework. The EU treaties, the argument runs, have proved remarkably flexible in allowing deeper euro integration. The second is at the other end of the spectrum. Echoing the views of Wolfgang Schäuble, the finance minister, it calls for a comprehensive set of measures, underpinned by treaty change, to secure the euro's future. It would finish the work left undone when France blocked German calls for political union at the time of the Maastricht treaty. The third option acknowledges that banking union, implicit or explicit debt mutualisation and shared responsibility for national fiscal policies will indeed require changes to the treaties, but prefers a rifle to a shotgun. Treaty amendments would be narrowly drawn to avoid a need for national referendums. The European Stability Mechanism provides a precedent. Finally, there is what I call the "if Britain plays silly buggers" option. Were Britain to seek to block changes, the eurozone would make new arrangements outside of the treaties. This is what happened when David Cameron tried and failed to veto a new fiscal pact. One would hope that Britain's prime minister learnt something from that mistake. Ms Merkel's cautious pragmatism argues for the third as her preferred option. A big bang approach would be the more convincing show of confidence in the euro's future but, one or more national electorates would probably shoot it down - even assuming that Mr Hollande, for one, was prepared to take such a risk. Whatever the choice, Berlin believes that the long-term future of the euro depends on France. As I heard many times at a conference hosted by the Ditchley Foundation, Ms Merkel has put a new understanding with Mr Hollande at the top of her list of priorities. Berlin knows two sides will always take a different view of, say, the respective responsibilities of surplus and deficit nations within the eurozone, but they need to stake out common ground. Far from exulting in French weakness, Ms Merkel sees it as an obstacle to bilateral co-operation. The maddening thing is that Mr Hollande knows what must be done. Visitors to the Elysée Palace find a president clear-sighted about the imperatives of rebuilding competitiveness and shifting the burden of fiscal adjustment from higher taxes to lower spending. The problem lies in the gulf between the analysis and the willingness to act. Mr Hollande worries that if he moves too fast, the French will take to the streets. Yet by moving too slowly he is driving them toward the xenophobic extreme represented Marine Le Pen's National Front. Returning growth is nurturing a belief that the euro crisis is over. Recent weeks have seen US hedge funds scrambling to buy the once toxic debt of the eurozone's weakest economies. Some will take this as a bad sign - many of the same funds were not so long ago losing large amounts of their clients" money by betting against the survival of the single currency. I have never understood how people so supposedly smart about markets can be so expensively dumb about politics. On this occasion, the hedgies are probably right about the short term. There are squalls ahead, perhaps one or two rough ones, but eurozone governments have not gone through the agonies of the past few years to throw in the towel now. Ms Merkel, though, is right about the long term: the euro has a future only if over time member states achieve a rough parity of competitiveness. And that has to start with France. Politics saved the monetary union. The hedge funds missed the sheer force of political will behind the project. Rising populism across the continent, however, threatens an opposing dynamic; a public mood that comes to blame the euro for the wrenching economic and social adjustments demanded of Europe by globalisation. The single currency is safe for the time being. It would be a mistake to say the game is over.