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Analysis
Reviving Franco-German relations

Reviving Franco-German relations

Macron and Merkel must ally on Europe

by Charles Grant in London

Thu 11 May 2017

In recent years the alliance between France and Germany has fallen into disrepair. German policy-makers have ceased to respect the French point of view because of the weakness of both the French economy and of its outgoing president, François Hollande.

Berlin and Paris have been far apart on what to do about the euro. Germany wants more fiscal discipline and new mechanisms to make countries like France and Italy engage in painful structural economic reform. France wants common instruments such as eurobonds and steps towards a transfer union.

Emmanuel Macron, the former economy minister who on 14 May will be sworn in as the next president of France, has a two-part strategy for reviving the alliance with Germany and thus revitalising the European Union. First, he wants to prove he is a reformer by cutting taxes on jobs, lowering the state’s share of economic output (currently 55% of GDP), decentralising collective bargaining, and introducing Nordic-style labour policies. Second, while winning credibility through reform, he wants to go to Berlin and propose a new pact on the euro, among other things.

Though the German establishment is pleased with Macron’s victory over far-right leader Marine Le Pen, it is divided on how to respond. Those close to Chancellor Angela Merkel and Wolfgang Schäuble, her finance minister, doubt Macron will achieve much in the short term. Germany’s ruling Christian Democratic Union is wary of his Keynesian thinking and of his proposals for a euro area finance minister and budget. As one Merkel aide puts it, ‘The rest of the EU should not pay France to do what is good for France.’ The aide added there would be no new EU treaty for a long time because many governments are unwilling to share more sovereignty.

But in Social Democratic Party (SPD) circles and in the foreign ministry (which is overseen by Sigmar Gabriel, former SPD chair), senior figures hope for a more enthusiastic German response. They want Germany to compromise on its euro area economic orthodoxies. One of them hoped France and Germany would sign a new Elysée ‘treaty of friendship’ in the style of President Charles de Gaulle and Chancellor Konrad Adenauer and launch joint Franco-German bonds as a step towards eurobonds. The senior figure remarked that the SPD would insist on some softening of policy on the euro in any new coalition with the CDU.

Yet the conservatism of Germany’s voters and politicians makes it improbable that Macron will get far in redesigning euro area governance, at least in the short term. But in other key areas, such as Britain’s exit from the EU, foreign policy, refugees and defence, there will be a new energy in Franco-German relations. Brexit means that Germany needs France more than ever as an ally in helping to run the EU. There are no other suitable partners.

Some of those in Berlin who are most committed to Franco-German relations say that the broader the bargaining between the two countries, the better the chances of Germany shifting its position on the euro. They suggest that if France is ready to make a stronger commitment to German and European security, it could even consider extending its nuclear umbrella eastwards. A Merkel-led government could hardly resist giving an amenable Macron some of what he wanted. Besides, the chancellor will be aware that disregarding Macron can only help Le Pen, either in France’s impending parliamentary elections or in the next presidential race.

Charles Grant is Director of the Centre for European Reform. This is an edited version of an article that was first published by the CER on 8 May.

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