The euro crisis shows starkly that power in the European Union has shifted from France to Germany



When the financial crisis erupted in September 2008 President Nicolas Sarkozy was quick to seize the European lead. He summoned Britain’s Gordon Brown to emergency talks in Paris. He urged Europeans to stimulate their economies. He taunted Germany’s Angela Merkel for hesitating over a stimulus plan, declaring that “France is working on it; Germany is thinking about it.” The French counted at least as much as the Germans—indeed, they were setting the pace (in part fortuitously, as France held the European Union presidency at the time).

This year, however, a subtle shift has taken place. The balance of power between the Franco-German pair that have dominated EU policymaking has shifted across the Rhine. The euro-zone debt crisis, during which all eyes have been on Germany, exposes this cruelly. On the fundamental elements—a permanent post-2013 debt-crisis mechanism, a treaty change to enshrine it in European law, tougher rules and sanctions for rule-breakers, no enlargement of the bail-out fund—Mrs Merkel has got what she asked for, while Mr Sarkozy has been stuck on the sidelines.

Despite the personal prickliness between the two leaders, France and Germany still try to thrash out a common position ahead of big EU summits, so the shift is not always apparent. It suits both sides to keep things this way. The myth of an equal partnership lends France an exaggerated stature and protects Germany from accusations of outright unilateralism. When Mrs Merkel and Mr Sarkozy met in Deauville in early October and stitched up a deal on the euro, there was the usual grumbling from other EU members about a Franco-German diktat. This week the pair put their unity on display again at a joint cabinet meeting in Germany.
It still takes French agreement to get things moving, meaning that Paris can act as an obstacle if it chooses to. “It is not true that Germany imposes its initiatives,” insists Laurent Wauquiez, France’s Europe minister. “The relationship has changed, but only in the sense that it’s no longer a matter of the heart but of interests as well.” Yet, uncomfortable as it may be for the French, the reality is that nowadays Germany has the upper hand. “People say that Europe is run by Merkel and Sarkozy but, in this relationship, the woman is stronger than the man,” comments another senior French official.

The main factor behind this shift is economic. Only last year France’s economy was doing better in the recession than Germany’s. Thanks to a strong, centralised government able to stimulate the economy quickly, and a generous welfare system that kept up domestic demand, French GDP shrank by only 2.6% in 2009, next to 4.7% in Germany and a euro-area average of 4.1%. This enabled the French to sustain the illusion that everything was just fine.

This year, however, the pecking order has been reversed. An export-led surge in Germany has pushed GDP growth to 3.7%, against only 1.6% in France and a euro-zone average of 1.7% (see article). Germany is reaping the benefits of years of wage moderation and labour-market reforms that improved its competitiveness. Despite Mr Sarkozy’s professed reformist zeal, France had to battle to raise its minimum retirement age by two years. Between 2005 and 2009 Germany’s share of world exports grew, whereas France’s shrank.

The state of French public finances only reinforces the division. No French government has balanced its budget for 27 years. In 2011 France’s budget deficit is expected to be over 6% of GDP, whereas Germany’s may be under 3%. To nervous euro-zone bond markets France looks a lot closer to Greece than to Germany: a potential problem country, not part of the solution.

It would be a mistake to overstate the shift. France remains Germany’s biggest trading partner. It has a permanent United Nations Security Council seat and a robust defence capability, as well as ties to Africa and the Arab world that make its voice count. It still has a strong presence in Brussels. But, partly because of its enlargement to the east, the EU is now centred more on Germany than on France.

In so far as there is talk about “tax harmonisation” between the two, it is almost entirely a matter of the French looking to Germany, even if only for credibility to impose reforms on France. Mr Sarkozy says he wants to align France’s tax structure more closely with Germany’s; an official commission is to report early next year. “I don’t think Germany is copying any French ideas in this area,” says Jean-Pierre Jouyet, head of the main French financial regulatory body.

Germany’s economic supremacy coincides with its political coming of age, as the country no longer shies away from fighting for its national interests. The post-war European bargain, under which the Germans “put their economy at Europe’s disposal while France gave them political legitimacy,” as one French official puts it, no longer holds. Add to this a generation of officials and politicians on both sides of the Rhine who neither studied at each other’s universities nor even speak each other’s language and, despite the tight institutional mesh that still ties the two together, there is a sense that the Germans no longer need the French as they once did.

“For France, it is very difficult to accept,” says one French minister. “We have a tendency sometimes to treat Germany as if it should just accept our ideas, because that’s what France does. But that is over.” This means that French officials have to work out new ways of retaining their influence in Europe. One must be to restore credibility over their public finances. Mr Sarkozy knows well that the Germans, as well as the bond markets, were watching his pension reform closely. His reappointment of François Fillon as prime minister was in part intended to show that he takes deficit-reduction seriously.

Another way is for the French to seek out common interests that can engage Germany. On agriculture, for example, Europeans are due to rethink the common agricultural policy after 2013. After months of bilateral discussions, and despite German reticence, the two countries have agreed to state that farming is a “strategic activity” and that Europe “needs a strong CAP”. The French regard this as a coup.

Ms Merkel still needs Mr Sarkozy’s support for any big initiative. He, in turn, has come to value the Franco-German tie. “Three years ago, we considered that the Franco-German relationship wasn’t exclusive, and that we should also look elsewhere,” says Mr Wauquiez. “Now we realise that not only we need it but it’s more important than ever.” The irony is that the French now want the relationship just as its balance tilts against them.
The Economist