Europe’s Troubled Marriage: The Bond Between France and Germany Is Fraying

Once the closest of friends, the two engines of European integration increasingly find themselves at odds over economic policy

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BERTRAND LANGLOIS / AFP / Getty Images

German Chancellor Angela Merkel and French President François Hollande during a meeting at the E.U. headquarters in Brussels, on the second day of an E.U. leaders summit, on March 15, 2013

As the financial crisis has taken its toll on Europe’s southern perimeter, Germany has grown used to being insulted and vilified. In Greece, Cyprus and even Spain and Portugal, Chancellor Angela Merkel and Germans in general have been depicted in the press as uncaring hardheads, and at times as a throwback to warmongering Nazis, for the way they are supposedly imposing their economic stamp on the rest of the euro zone. For the most part, the Germans have shrugged off the caricatures.

But when France’s Socialist Party, the party of President François Hollande, circulated a draft text on April 26 that attacked Merkel for her “selfish intransigence” and called for a “confrontation” with Germany over policy, the reaction was one of surprise and pain. France, after all, is the country that allied itself wholeheartedly with Germany in the 1950s to drive forward the grandiose project of greater European integration. While there have been policy differences in the past between the two countries, they’ve never before descended to the level of personal insults.

The draft text was quickly amended to remove the offending passages. But the damage has been done. In the aftermath of the incident, policymakers and political analysts in France, Germany and elsewhere have been trying to figure out how serious the rift is, what its primary causes could be and, above all, what it means for the future. While interpretations differ, the consensus seems to be that the cohesion between France and Germany that has been so critical for the past five decades is now seriously fraying.

“This is a slippery slope, and it’s important we don’t continue down it,” says Pascale Joannin, general manager of the Fondation Robert Schuman think tank in Paris.

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The divergence between France and Germany both in ideas and in policy practice has grown. The French want Germany to loosen tight restraints on both wages and investment spending; the Germans see that as irresponsible and shortsighted, and say the French — and other Europeans — need to become more competitive. Germany has led the way by example: it has held down increases in labor costs over the past decade, even as the French have allowed their production costs to grow rapidly. The same divergence has been evident in fiscal and budgetary policy, with Germany at pains to keep down government spending, while France has allowed its share of spending as a percentage of the overall economy to rise to 56% of gross domestic product and its deficit to swell; by comparison, public spending is just 45% of GDP in Germany, and the budget there is in surplus. The overall result is a big and growing gulf between German and French competitiveness. The unemployment rate in France, at 11%, is more than double the 5.4% rate in Germany. And while France’s trade deficit continues to widen, hitting nearly $87.7 billion in 2012, the Germans once again posted a buoyant trade surplus, of $246 billion. For Germany, it was the second highest ever, just below the record 2007 level; for France, it was the second worst ever, only slightly improved from 2011.

The view from Germany, increasingly, is that French economic weakness is now becoming a serious problem for Europe. On April 29, the business daily Handelsblatt published a leaked internal report about the French economy written by experts in the German Economics Ministry. Its withering conclusion: “French industry is increasingly losing its competitiveness. Ever more businesses are shifting outside France, and profitability is low.”

One of the problems is that in Paris there is no consensus within Hollande’s party, or his government, about the right direction to take Europe’s economy. Hollande was elected on a platform of promoting a growth agenda in Europe that would tone down the hard edges of Germany’s insistence on budgetary rigor. So far, he has failed to make much of a dent in that policy. Within the government in Paris, some ministers, including the firebrand in charge of industrial renovation, Arnaud Montebourg, are openly calling for a bold Keynesian reflation that jettisons the efforts to keep down the deficit. Hollande, Prime Minister Jean-Marc Ayrault and Finance Minister Pierre Moscovici are resisting — but haven’t taken serious steps to reduce government spending.

One high-level German official in Paris says “France’s biggest problem is that the left just cannot agree on how to deal with the economy. In that context, it’s easiest to find a scapegoat, who happens to be Merkel.”

So where does it all go from here? The experts see three possible scenarios. One is a kiss-and-make-up strategy: in other words, Hollande and his team will try to patch up relations with Merkel. The second possibility is that the French government essentially waits to see what happens in the German national elections this fall, hoping that the Social Democratic Party, currently in opposition, will be returned to government in Berlin, perhaps in a coalition. But even if the Social Democrats do return to power, the French may be disappointed to discover that they share less of Paris’ concerns than expected.

The third scenario is the one Berlin is most afraid of: that the French economy hits increasing turbulence over the next few months, and that France suddenly becomes a focus of attacks on financial markets. If that’s the case, Germany alone can’t save the euro. For now, says Claire Demesmay, a France specialist at the German Council on Foreign Relations in Berlin, “financial markets are calm and French interest rates are low. But we just don’t know how long that will continue.”

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11 comments
sabath68
sabath68

"Good for us Americans also."

Sorry the US has no fuctioning heavy industry any more, the US only buys but dosn't sell. The US has only the fiat Dollar, or the Petrodollar, thats why the US has to invade countries that want to ged rid of it, and want gold therefore, the US-money is worth nothing ask Bernanke. Look at the US health monopoly if you can aford without taking a morgage great if not you loose your home and die. Look at the US-tent cities or ghost towns.  The US has 23 milion veterans, and the government ignores them, how patriotic is that. Your government is spying and lying to you, the US has more authorities than the GDR had they only had the stasi. I would say the US is rotten to the bones. And here in Germany we citizans know that our government is crap and that the economy is crap, at least we don't walk arround in dream world.


arvay
arvay

Observations:

Merkel, like Cameron, is dead wrong on austerity. She's causing things to get worse.

Hollande is an idiot. Example: His "education reform" of eliminating homework was just the kind of leveling thing that gives "socialism" a bad name. Raise the boats, moron, and tax the rich more, don't cut back people who need an education. There are ways to creatively confront Merkel's errors, Hollande naturally has picked a stupid way. 

Let's also remember that Hollande wants to intervene in Syria. That region is a mess because of French colonialism  and British colonialism and  they, in particular, should stay out. Us too. 

The only people entitled to bring up the Nazi period are Jews who suffered because of it, and the Russians, who won the war. The west encouraged Hitler, Poland at first agreed to join in a German invasion, the US only got interested because they feared the Russians would sweep right into Spain. The average crack den is better managed than Greece and Italy, and for them to bring up Nazism as some kind of "defense" of their incompetence and fecklessness is bordering on the criminal. 

The EU is a slowly rotting corpse. The end of trade restrictions is a good thing  and some common standards, but the rest is falling to pieces. The best thing would be for Russia and Germany to ally themselves, over the heads of the squabbling, improvident children. Both nations have very able technical people, highly educated, serious people and Russia has all those resources. 

Time to do the logical thing. The US and Britain become offshore islands, and Europe becomes a major world power -- in thrall to  no one. Good for us Americans also. 

Steed_Johann
Steed_Johann

It is worth reading Pettis, The great rebalancing and a short summary at http://www.foreignpolicy.com/articles/2013/05/07/no_the_spanish_can_t_be_more_german_eurozone_saving?page=full for a better understanding of the issues. It seems that Europe has learnt nothing from the Roman Great Immovable Property crash in the first 50 years AD, and its economists even less. It might be an idea to read it, to set the current responsibilities in perspective, and to place them where they lie. The austerity program inculcated by Marxist trained East Germans is definitely not the ample and historically accurate solution to the imbalances Petit points out. He has not invented a new theory, he has simply lectured to the Chinese.... The Chinese probably see us as being in decline, simply because we do not learn long term lessons and apply them. Perhaps best to change gear and accelerate in a given direction in the right ratio of consumption to savings? The conclusion is evident, the combination of the Eurocurrency handcuffs and the German lack of state consumption has simply exported unemployment and state savings to States who were unable to absorb them, other than by creating asset bubbles. That is what happened in sub-prime, and also what has happened in the EU. Virtue in German does not have the same sense in a more global European economy.

Steed_Johann
Steed_Johann

It is worth reading Pettis, The great rebalancing and a short summary at http://www.foreignpolicy.com/articles/2013/05/07/no_the_spanish_can_t_be_more_german_eurozone_saving?page=full

for a better understanding of the issues. It seems that Europe has learnt nothing from the Roman Great Immovable Property crash in the first 50 years AD, and its economists even less. It might be an idea to read it, to set the current responsibilities in perspective, and to place them where they lie. The austerity program inculcated by Marxist trained East Germans is definitely not the ample and historically accurate solution to the imbalances Petit points out. He has not invented a new theory, he has simply lectured to the Chinese.... The Chinese probably see us as being in decline, simply because we do not learn long term lessons and apply them. Perhaps best to change gear and accelerate in a given direction in the right ratio of consumption to savings? The conclusion is evident, the combination of the Eurocurrency handcuffs and the German lack of state consumption has simply exported unemployment and state savings to States who were unable to absorb them, other than by creating asset bubbles. That is what happened in sub-prime, and also what has happened in the EU. Virtue in German does not have the same sense in a more global European economy.

moiragallaga
moiragallaga

The economic troubles in the Eurozone are far from over.

paulgeorges
paulgeorges

To change policy should as did Mario Monti in Italy not to pay for politicians or leave all the benefits of their dependents (housing, company cars, free besides the travel and moonlighting therefore pensions). Why a French after 40 years of work may be in the € 700 per month pension and a deputy after 5 years of "work" button € 1,200 immediately? Do what I say not do as I do! How can we have confidence in this kind of person who is concerned only for themselves and their friends?The state would have a lot of money if he sold his real estate to stay free partion officials, MPs, senators, councilors, heads of offices ...... But I dream ...... Salary for these people is spending money only in relation to all the other benefits they receive. As the blessed time (for some) of the kings of France with the privileged class and the third state that is only there to payer.Untill when?Criticize other countries? No, because as the saying goes "help yourself and heaven will help you" you have to look at itself and not put the blame on someone else!


sabath68
sabath68

Jay, the German Goverment is full of crap. The german workers had since 1990 been held back with their wages. The german goverment has to give the earned taxmoney to pay the workers, because the wages are under the living standard. Unenployment is at its highest rangs, and the goverment deceives their people with fals numbers. And say's the people have to work much harter for less money. This year are elections, and the bilderbergers Merkel & Steinbrück are not that beloved by the people as the mainstreampress thinks they are. 

Greetings from Berlin, Germany


Read more: http://world.time.com/2013/05/07/europes-troubled-marriage-the-bond-between-france-and-germany-is-fraying/#ixzz2SmU8UWzn

bryanfred1
bryanfred1

So French government spending at 56% of GDP isn't sufficient to "reflate" the economy?  I'm curious what Mr. Montebourg thinks would get the job done?  These countries are separated by nothing more than a river - and that only in part.  Their divergent fortunes are a perfect case study in the benefits and pitfalls of their respective fiscal, economic and labor policies.

Steed_Johann
Steed_Johann

Sorry for the double hit, signing in issue