Editor’s note: This article was originally published by
The National Interest
The state of the Franco-German alliance demonstrates just how gaps in economic-performance numbers can drive countries apart—in this instance, countries of the Eurozone. The more Germany outperforms its neighbors in growth and unemployment, the sooner its dominance will reach a point where it feels less beholden to the spirit of compromise that has characterized Franco-German relations and fostered the “motor” of European construction. Germans feel vindicated by their difficult structural reforms undertaken in the early 2000s and are increasingly disdainful of those who shirk similar responsibilities, all the more so when they are asked to finance that very irresponsibility.
A few figures tell the story: While Germany reported a budget surplus, France posted a deficit of almost 5 percent of its GDP. German unemployment (5.4 percent) and youth unemployment (8 percent) are a fraction of French levels (10.5 percent and 24.6 percent, respectively). These are Germany’s best numbers in more than a decade, and France’s worst unemployment in fourteen years. In this year’s first quarter, Germany’s economy grew slightly while the French and broader Eurozone economies contracted by 0.3 percent. Recent estimates that the Eurozone shrank again in the second quarter would make for seven quarters of negative growth in a row.
As the situation drags on, it will soon be fair to say that France can be considered the Eurozone’s second-largest economy only in the sense that the European Union has the world’s second-largest military budget. Disparity on this scale between the leader and everyone else fundamentally alters the balance of power. France is rapidly joining “the rest”: its economy and public opinion are trending toward Southern Europe.
German public and elite opinion, meanwhile, now resembles British-style Euroskepticism: why should we link our fate to these jokers? Germans ask themselves, not unjustly, whether this variant of European unification is the albatross they must bear ad infinitum to atone for the belligerence of their forebears. German taxpayers have paid reparations towards Israel and the mostly Jewish victims of the Third Reich amounting to roughly $89 billion. But that was a one-off. Germany can reasonably argue that without structural changes, there is no end in sight to their European solidarity. As of this spring, Germany had contributed over $280 billion to Portugal, Ireland, Greece and Spain.
Gallup’s most recent study of French and German opinion depicts two countries losing sight of what initially brought them together. When given the choice, 49 percent of Germans would vote to stay in the European Union and 31 percent would vote to leave. French numbers were the reverse. France is, moreover, the country that disapproves most of German leadership, alongside the UK, with more than a third of respondents embracing that sentiment.
The tacit agreement to abide disagreement within the alliance without undue resentment seems to be fraying. The Frankfurter Allgemeine Zeitung wrote, “Because Germany’s economy is so strong and because the distance between it and its partners is growing, so is the jealousy.” This display of condescension recalls French insults towards the thirteen Eastern European countries that vocally supported U.S. intentions in Iraq ten years ago.
The pressures on the French government have also made critical outbursts towards Germany more likely. In April, the French minister of industrial renewal accused German policymakers of “driving us into a wall.”
How could this widening economic and opinion gap not portend an imminent rupture in Franco-German relations and the decline of European integration?
From the French perspective, Germany stands in the way of a centralized fiscal capacity that would help economies adjust in times of difficulty—which it sees as the natural exit from the crisis. Germany, in turn, sees France impeding the institutional reforms necessary to avoid repetition of just such another economic crisis.
Another point of Franco-German divergence briefly arose in view of the forthcoming Transatlantic Trade and Investment Partnership (TTIP) negotiations. The French have been more reluctant than Germany to embrace the TTIP, demanding “an agreement that respects our values.” As the prime minister said, “This is about our identity, and this is our struggle.” France soon announced its “red line” and “non-negotiables”: the respect of common agricultural policy—excluding genetically modified products and hormone-enhanced meat—and the exclusion of audiovisual products from any free-trade agreement. The latter issue was resolved to France’s satisfaction at a meeting of EU trade ministers last month.
The Franco-German drama over TTIP and the suspense regarding Outright Monetary Transactions (OMT), the ECB’s bond-buying program currently being challenged in the German constitutional court, foreshadow a muddled future for European action en bloc.
On the one hand, we are witnessing the hardening of national positions and the revival of national identity. The German psyche appears to be calcifying into a Euroskeptic mold, while the French resent the German notion that there could only be one way out of this crisis.
The TTIP and OMT episodes illuminate the double bind perfectly: a collective mindset would benefit France or Germany in one case but not the other, and each country wields potential veto power over something important to the other one. Because they still need each other, cooler heads will likely have the last word. The coming years will demonstrate that the Franco-German motor is not yet spent, however, and that these two countries’ basic European calculus have not changed beyond recognition.
France’s Francois Hollande and Germany’s Angela Merkel are both faithfully expressing their national zeitgeist within unusually constraining political circumstances. The process of undermining national identity from above (Europeanization) has been happening at the same time as the erosion of national identity from below (mass migration). After decades of major public policies were conducted over the heads of voters, however, the venting of dissatisfaction is probably healthier than the alternative. This public confrontation is a more democratic iteration of what used to be European integration “by stealth.”
François Hollande was ridiculed after he recently said the euro crisis was over. The French Central Bank estimates that the economy resumed expansion (+0.1 percent) in the second quarter, interest rates are low and consumer spending is high. But Hollande was overstating the case. There are good reasons for continued pessimism: the 3.2 million and counting unemployed, the highest public spending in the Eurozone (56 percent of GDP) and public debt that will soon rise to 88.6 percent of GDP.
However, there is also growing German optimism about the crisis gradually ending. German companies are considered to be in good economic health, and foreign direct investment in Germany increased last year by 5 percent (second only to the UK). Moreover, Germany had a budget surplus of €2.2 billion.
Germany enjoys more breathing room in its economy and appears increasingly realistic about lending a hand and bridging differences, within reason.
Even if the German Constitutional Court finds that Outright Monetary Transactions are indeed a fiscal matter that requires new legislation, the Bundestag has shown itself willing to go along with bailouts under another name in the past.
And because French leaders have ever fewer degrees of freedom to act within their own domestic political context, they are likely to push for (and claim) symbolic and rhetorical victories while actually making concessions to German demands.
The new Franco-German rituals—initial opposition followed by protracted negotiations and some concessions—help avoid creating moral hazard for debtor countries and has had a calming effect on international markets. One could describe Hollande’s approach as “altruistic misdirection.” Its effects are ultimately pro-European. Germany will continue to drag its feet—but it will do so while inching ever further away from its own nonstarters. These theatrical performances are not purely for domestic consumption. Germany’s “egotistical intransigence,” as French Socialists put it this spring, is good for Europe.
Rather than serving as a unifying diplomatic exercise to highlight Iran’s troubling regional activities, the [Warsaw] summit primarily highlighted America’s diplomatic isolation from its European allies.