Why the
Franco-German engine that powered the EU is currently kaput
Beset by
political crises and economic turmoil, the bloc’s two biggest countries are
both at a crossroads
Jon Henley
in Paris and Deborah Cole in Berlin
Sun 15 Dec
2024 06.00 CET
“When France
and Germany advance, all Europe advances. When they don’t, it grinds to a halt”
was how former French president Jacques Chirac put it almost a quarter of a
century ago at one of the periodic love-ins between the EU’s two biggest member
states.
So what
would Chirac, who died in 2019, make of the current condition of the famed
Franco-German engine which, since the bloc’s inception, has powered so much of
the postwar European project? It looks not so much faltering as comprehensively
bust.
Emmanuel
Macron on Friday appointed a new prime minister, his loyal centrist ally
François Bayrou, who becomes France’s fourth premier this year and will have
the daunting task of trying to assemble a stable government after the collapse
last week of the country’s shortest-lived administration since 1958.
Meanwhile
France’s public-sector deficit is on track to exceed 6.1% of GDP this year,
more than double the eurozone limit; public debt is 110% of GDP and rising; and
the bond markets this month rated France as marginally less creditworthy than
Greece.
In Germany,
the fractious centre left-led coalition in power for the past three years
collapsed last month under the weight of its own ideological contradictions and
the pressure of multiple crises triggered by Russia’s full-scale invasion of
Ukraine.
Whoever
becomes chancellor after the 23 February elections will have to tackle the
world’s worst-performing big economy, beset by high energy and labour costs as
well as bureaucracy, crumbling infrastructure and plodding digital expansion.
The slowdown
with key trade partner China has also dealt a blow to German exports, a
traditional strength, while the all-important car industry has been slow to
develop attractive electric vehicles (EVs) and now faces the threat of
swingeing US tariffs under Donald Trump.
With France
unable to hold fresh parliamentary elections until July and Germany possibly
without a new government until June, the political febrility at the top of the
EU’s two most influential countries will inevitably hobble EU decision-making.
Paris and
Berlin are seen as the EU’s core power axis, driving policy and defining the
main contours of its agenda. With both capitals unable to make big policy
decisions for want of strong governments, the bloc could face months or more in
the mire.
The two
powerhouses’ parallel economic and fiscal woes will also weigh heavily on the
EU. Some analysts believe the bloc’s two largest economies – accounting for 41%
of the 27-member EU’s entire GDP – would both contract economically in 2025.
The timing
could not be worse, with Europe facing the return of America-first policies
under Trump’s second presidency, with German industry (in particular) in
crisis.
Quite how it
came to this is not too hard to understand. Figuring out how France and Germany
might be able to pull themselves out of their ongoing political and economic
doom spirals, however, is not so easy.
When the
German government imploded last month, observers were less surprised by its
demise than astonished that it had limped on for so long.
When
chancellor Olaf Scholz fired his obstreperous finance minister, Christian
Lindner, on 6 November over a bitter months-long budget dispute, he set in
motion a chain of events that optimists say give the country a vital shot at
renewal.
“Do we dare
to powerfully invest in our future as a strong country? Will we secure jobs and
modernise our industry? Are we ensuring stable pensions, reliable healthcare
and good nursing care?” a defiant Scholz said on Wednesday.
Lindner’s
sacking left Germany with a rump minority alliance of Scholz’s Social Democrats
(SPD) and the ecologist Greens capable of only the most perfunctory
policy-making from now until a new government is in place.
On Monday,
Scholz, historically unpopular but nonetheless standing as his party’s
candidate for re-election, will face a confidence vote he has called to trigger
the new election.
If Scholz
loses the MPs’ ballot, President Frank-Walter Steinmeier will dissolve
parliament and Germany will officially embark on an intensely truncated
campaign broken up by the Christmas holidays.
A recent
poll put the centre-right CDU/CSU on 31%, followed by the far-right Alternative
for Germany (AfD) on 18%, Scholz’s SPD on 17% and the Greens on 13%. The FDP
and new leftwing conservative Sahra Wagenknecht Alliance are both scoring right
around the 5% threshold for parliamentary representation.
The smart
money as Germany’s next leader is therefore on Friedrich Merz, a longtime rival
of his more moderate fellow Christian Democrat Angela Merkel, whose 16-year
tenure as chancellor largely left Merz in the political wilderness.
He used the
time to build a small fortune in business, notably at the German unit of
multinational investment firm BlackRock. Merz, whose notoriously hot temper has
reputedly mellowed slightly with age, has vowed to pull Germany out of a deep
economic slump while taking a harder line on defence, Russia and migration.
But because
Merz’s centre-right CDU/CSU alliance, assuming it comes in first, has little
chance of winning an absolute majority, its choice of coalition partner will
inevitably water down his economic reform plans. All major parties have ruled
out cooperating with the far right.
“Germany’s
current economic model, in which the supply of cheap fossil fuels and the
production of cars with combustion engines play a central role, seems outdated
– but politicians rarely dare to say this openly,” said Kai Arzheimer, a
political scientist at the University of Mainz. “I’m at least sceptical that
there will be a genuine fresh start in the near future.”
If the new
government fails to turn things around quickly, it is the anti-migration AfD,
backed particularly by eastern voters, that stands to benefit the most.
Ursula
Münch, director of the Academy for Political Education thinktank in Bavaria,
said that with the SPD likely to become Merz’s partner, creating a
middle-of-the-road government, disappointed hopes and disillusionment could
prove to be a toxic mix.
“The
expectations of the electorate, corporations and the media are very high – too
high,” she said, given the years-long dodging of pressing structural problems
as Germany has fallen behind. “That will overtax any government.”
But Münch
said the emerging consensus that Germany needs to tackle its weaknesses head on
could offer a compelling mandate to a straight-talking chancellor with a
sufficient majority. “That would make me pretty confident that the Germans
could become more optimistic again and develop more trust in democracy,” she
said.
France’s
current political problems – the country is undergoing its worst period of
political volatility since the second world war – stem largely from Macron’s
decision to dissolve parliament after his centrist forces were heavily
defeated by Marine Le Pen’s far-right National Rally (RN) in this spring’s
European elections.
In the
parliamentary election, the New Popular Front (NFP), a coalition of
left-leaning parties ranging from the mainstream Socialist party (PS) to the
radical-left France Unbowed (LFI), headed by the political firebrand Jean-Luc
Mélenchon, won the largest number of seats.
Macron’s
alliance was beaten into second place and the RN (although it finished as the
largest single party) placed third. Parliament was divided into three roughly
equal and opposing blocs – broad left, centre and right/far right – none of
which, crucially, enjoyed anything approaching a parliamentary majority.
After weeks
of dithering and refusing to appoint a prime minister from the left, Macron
tapped Michel Barnier, a veteran conservative and the EU’s chief Brexit
negotiator, backed by a fragile minority alliance of centrist and centre-right
MPs.
This month,
the far-right RN joined forces with the left-leaning NFP to topple Barnier’s
government in a no-confidence vote over the 2025 budget, which included about
€20bn (£16.5bn) in tax increases and €40bn in public spending cuts.
Bayrou, his
replacement, must try to cobble together a more solid ruling majority, possibly
involving some of the centre left – or at least to secure a “non-aggression
pact” that would not leave the new government prone to exactly the same threat,
a no-confidence vote backed by both left and far right, as Barnier’s.
The
parliamentary arithmetic, however, remains the same. Macron “seems to be
getting ready to build a more stable governing pact with Conservatives,
Socialists, Communists, and Greens”, who “seem ready to make compromises and
avoid another government at the mercy of the RN”, said Rym Momtaz of the
Carnegie Europe thinktank.
“But that’s
only a temporary fix. He still doesn’t have a solution to reverse the surge in
popularity Le Pen has enjoyed since 2017, and her significant chances of being
elected president in 2027.”
It hardly
bodes well for France’s fiscal problems, meanwhile, that the trigger for the
outgoing government’s collapse was a belt-tightening budget whose central
objective was the partial restoration of France’s ailing state finances.
At least,
though, France seems to have “learned the lesson” that it needs “a credible,
slow, fiscal tightening”, said economist John Springford of the Centre for
European Reform. Germany, which needs tax and labour market reforms and public
investment to raise spending, has yet to make that step, he said.
From an EU
perspective, however, some analysts are cautiously optimistic. “It’s a
premature view that France and Germany are down and out,” said Mujtaba Rahman
of the Eurasia Group consultancy. “By the second half of next year, we should
see a re-energised Franco-German engine.”
Germany’s
elections being brought forward to February was “very positive”, Rahman said:
“We’ll have clarity earlier in the year, a more coherent coalition and a more
Russia-sceptical chancellor. And Merz and Macron will be much more aligned on
the big issues than were Macron and Scholz.”
Macron’s
domestic woes will not vanish overnight. “But there does seem to be a sense of
the national responsibility to form a government, pass a budget and provide the
minimum stability that France needs – and that Europe needs from France,” he
said.
Most
importantly, Trump 2.0 “has given weight and credence to everything Macron has
been saying on security, defence and strategic autonomy”, Rahman said. The
Paris-Berlin tandem “will be reinvigorated – and with a new, improved EU
leadership, these people will give Europe its best shot at mitigating the worst
of what might be to come”.
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