It's not Italy that should spook us - it's France

All attention has been focused on Italy and Spain in the eurozone crisis recently. But the real testing ground for the euro is going to be France - fast running up massive new debts and steadily losing competitiveness. Matthew Jukes explains why this globally important economy could be the place where the single currency unravels.

The euro debt crisis increasingly resembles a teenage horror film. As soon as you think it is all over, the monster springs back to life. This week it was the turn of Italy to be spooked. Thecountry's bond yields started to spike upwards, a serious issue for a nation that has vast debts on which to pay interest. After flying under the radar for much of the crisis, the Italian debt market looks close to unravelling. Spain is coming under increasing scrutiny as well. It might well be next. But in fact, the markets are looking in the wrong place. The real testing ground for the euro is going to be their northern neighbour, France.

Monetary union was, of course, largely a French idea. The country's industrial and financial establishment had long been unhappy with floating exchange rates. As one of the major exporters within the European Union, they could see that constantly shifting currencies made life very difficult for their companies. While Germany primarily exports to the rest of the world, France is a eurozone manufacturing hub. A fixed currency system was in its interests. Indeed, some see the creation of the euro as a deal between France and Germany. Germany accepted merging its currency with France's in exchange for French support for re-unification after the fall of the Berlin Wall. It is ironic, therefore, that it isn't working out the way France planned.

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Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.