PARIS - JUNE 30: The Eiffel Tower is illuminated in blue with gold stars, representing the EU flag, to mark the French European Union presidency on June 30, 2008 in Paris, France. French President Nicolas Sarkozy assumed leadership of the European Union and will hold the title for six months. (Photo by Pascal Le Segretain/Getty Images)[/caption]
How France and Germany Can Revive the EU
by Thorsten Benner and Thomas Gomart
In March, a set of photographs reproduced in the international press captured two possible futures for France’s relationships with Germany and the European Union. One image showed Marine Le Pen, the presidential candidate of the far-right National Front, meeting with Russian President Vladimir Putin in the Kremlin. The other showed Emmanuel Macron, the 39-year-old candidate of the centrist En Marche! party, sitting with German leader Angela Merkel in the chancellery in Berlin.
On the one hand was a presidential hopeful who pledged to break from France’s elite foreign policy consensus—which calls for strategic independence and close cooperation with Germany within a pro-European, multilateral framework—in favor of an exit from the EU and closer ties with Russia. On the other was a candidate who was leading a liberal, pro-European campaign and has been a standard-bearer for France’s traditional ties with Germany.
On May 7, Macron was elected French president, taking around 65 percent of the vote to Le Pen’s 35 percent. His presidency offers a rare chance to revive the French-German relationship just when Europe needs it most. Together, Berlin and Paris can strengthen the EU and the eurozone, rally the continent against illiberalism, and better defend European interests on the world stage.
It won’t be easy. Without a well-oiled party apparatus and the guarantee of a parliamentary majority, Macron is in a precarious position. He must advance pro-European policies in a country where most voters view the EU unfavorably and where many have turned to the far right and the far left because of their unease with the effects of globalization. France and Germany’s economic imbalances and differences over EU policy have produced resentments on both sides.
Yet renewed cooperation is the only sound choice. Macron will be able to deliver on his plans to reform France’s public finances and labor market only if Germany helps ease French voters’ concerns about those projects by agreeing to back more risk-sharing and joint public investments within the eurozone. And only if Macron makes progress domestically will he have the political capital he needs to work with Germany to develop an ambitious foreign policy agenda for Europe. Unless German leaders are willing to compromise, the opportunity that Macron’s presidency has created for France, Germany, and Europe will go to waste.
MACRON’S MOMENT
Over the past decade, the imbalances between France and Germany have deepened. Whereas France runs a trade deficit, Germany runs an enormous surplus (it is worth some $35 billion with France alone). Nearly ten percent of French workers are unemployed, while only six percent of German workers are. Germany is France’s biggest trading partner; for Germany, France comes second to China. And when it comes to economic policy, France favors using public spending to direct development and values the ability to respond flexibly to crises, whereas Germany typically believes that structural reforms should be the basis for spurring growth and prizes adherence to strict spending rules and inflation targets. Those differences partly explain the French and German public’s divergent attitudes toward the EU, over whose policies Germany wields extensive influence: while only 38 percent of French citizens view the EU favorably, 50 percent of Germans do.
They also help account for the recent rise in anti-German sentiment in France. Le Pen, who has accused Germany of “abusing” the rest of Europe, and the leftist candidate Jean-Luc Mélenchon, who has labeled Germany’s economic polices “poison,” drew strong support from French voters who wanted their country to abandon the EU and NATO and cut ties with Berlin. In Germany, meanwhile, many observers and officials have developed a kind of condescension toward France, which they regard as an economic basket case. (In fact, in sectors such as banking, insurance, and retail, French companies are global leaders, and the country enjoys high productivity and a strong demographic profile, among other advantages.)
Macron is committed to overcoming these divisions. As early as August 2015, when he was France’s economy minister, Macron called on Europe to end what he termed the continent’s “religious war” between austerity-minded Calvinist states in the north (such as Germany) and profligate Catholic countries in the south (such as France), suggesting that the EU should “find a balance between these two approaches.” As president, Macron aims to approach this balance by reenergizing the French labor market and aligning France’s public finances with eurozone budget rules by, for example, cutting wasteful government spending, investing in better job training programs, and making labor market laws more flexible. In return, Macron expects Germany to agree to greater risk-sharing within the eurozone. He has called, for example, for the creation of a joint eurozone budget that would promote pro-growth investment in infrastructure and other areas, provide emergency financial assistance, and help states respond to economic crises. “If we don’t have a brave plan of structural reforms,” Macron told the French newspaper Les Echos in February, “the Germans won’t follow us.”
Merkel won’t be able to make such compromises right away, since she is facing an election in September. But she can already signal that she is willing to consider Macron’s proposals. In the months ahead, Berlin and Paris should announce some symbolically important joint ventures, such as a French-German infrastructure investment fund or a bilateral project to boost both countries’ digital economies and create a true common digital market for the European Union. During the next meeting between Macron and Merkel, the two leaders should resolve to support a so-called multispeed EU, even as they make clear that no EU state should be permitted to depart from the union’s foundational democratic values, as Hungary and Poland have.
Once the next German government is in place, Germany and France can start negotiating eurozone issues in earnest. Germany should depart from its recent orthodoxy and make some serious concessions. It should start by recognizing that the euro has widened the economic gap among the states that use it instead of encouraging their convergence. To correct this trend, Germany should consider backing more joint public investment in areas such as infrastructure and education, whether through a joint eurozone budget or some other mechanism. This would help spur growth in the EU’s struggling economies, many of which, like Portugal, have massively cut public investment to meet budget targets. And Berlin should support greater risk-sharing among eurozone countries by agreeing to a joint deposit-insurance fund to protect bank customers across the currency bloc—a measure that the European Commission proposed in 2015 but has since been delayed partly as a result of German opposition. Berlin and Paris should also encourage EU countries to eliminate some national barriers in such areas as the service sector, which makes up around 70 percent of the EU economy. This would deepen the integration of the eurozone’s market, encouraging growth and reducing its economic imbalances. As Macron has argued, without such measures to bring the eurozone’s economies closer together, the common currency is unlikely to survive another decade.
[caption id="attachment_55253580" align="aligncenter" width="4528"]
PARIS, FRANCE - MAY 08: French president-elect Emmanuel Macron and outgoing French President Francois Hollande attend a ceremony to mark the Western allies' World War Two victory in Europe at the Arc De Triumphe on May 8, 2017 in Paris, France. The ceremony marks the 72nd anniversary of the victory over Nazi Germany in 1945. (Photo by Jeff J Mitchell/Getty Images)[/caption]
Orthodox economic policymakers in Berlin would probably balk at most of these proposals, since they challenge deeply held German beliefs about the right paths to stability and growth. But German officials should think twice before rejecting them. Macron needs to show that he can get concessions from Berlin to win over an electorate that is generally skeptical of Germany and the EU. If his reforms fail in the face of public opposition, a far-right or far-left party could assume the presidency in 2022 and pursue nationalist policies that would spell disaster for the European project. Berlin has reason to invest in Macron’s success by meeting him halfway.
The good news is that there are some senior politicians in Merkel’s Christian Democratic Union who seem to favor just such a change in course. Norbert Röttgen, the chair of the Bundestag’s foreign affairs committee, is one example: he argued during the Greek debt crisis in 2015 for a “European deal that looks beyond ideological trenches and blends liberal reform efforts with policies that stimulate jobs and growth.” That sounds a lot like Macron. Should the Social Democratic Party, which is sympathetic to Macron’s proposals, gain strength after the next election, as seems likely, a shift in Germany’s stance may become possible, even if Merkel remains at the helm. If Martin Schulz, the Social Democratic challenger, becomes chancellor, such a change seems guaranteed.
AS WITHIN, SO WITHOUT
The failure of outgoing French President François Hollande’s domestic agenda early in his term diminished his stature on the international stage, preventing him from becoming an independent and effective partner for Germany. A successful start to Macron’s reforms could have the opposite effect, giving the French president the political capital he needs to work with Berlin on a new agenda for Europe’s security. This is another reason for Germany to back Macron’s domestic program: as the Middle East and North Africa have fallen apart and as Russia has grown more aggressive, European states have failed to keep pace. The doubts cast on the United States’ security guarantees by President Donald Trump have placed Europe’s inability to provide for its own defense in sharp relief.
France and Germany urgently need to strengthen Europe’s diplomatic and military capabilities. They should try to incentivize Tehran to play a more constructive role in the Middle East, pressing it, for example, to withdraw its forces from Syria and to encourage Syrian President Bashar al-Assad to agree to a political settlement. As for the conflict in the Donbas, France and Germany should pressure both Russia and Ukraine to stick to their commitments under the Minsk agreement, and they should make it clear that the sanctions on Russia can only start to be lifted if Moscow ends its aggression in eastern Ukraine. France and Germany should also work to strengthen the EU’s influence over international trade policy and climate change, both of which are in need of a steady hand. Macron’s presidency should help make all of this easier by closing some of the gaps between France and Germany over foreign policy: the new French president shares Germany’s skepticism of military interventions and seems more willing than his predecessor was to cooperate with Berlin to manage the European migration crisis.
The next five years will be a period of reckoning for France’s military, which is the continent’s strongest. The demands on French forces have grown as a result of Paris’ foreign interventions and its domestic counterterrorism missions, but the funding has not kept up. Since 2004, France’s defense expenditures have fallen as a percentage of the country’s GDP, despite brief spikes in 2009, 2010, and 2014; they now stand at 1.8 percent. Macron has inherited a set of problems that will make it impossible for France to maintain its current strategic ambitions without quickly increasing the defense budget. Some analysts have called for Paris to make additional investments worth more than $38 billion over the next five years, in part to support the overdue modernization of France’s nuclear deterrent, which has become even more important in light of the doubts over the United States’ commitments to the continent.
Germany can help. Merkel has pledged to increase defense spending from 1.2 to two percent of the country’s GDP by 2024. Berlin should use some of those extra funds to back a joint effort to increase the share of defense spending that both countries spend on research and development, which would also have economic benefits, particularly in the digital realm. As they cooperate with each other, France and Germany should also work closely with the United Kingdom, even after it leaves the European Union. That country’s military and intelligence capabilities are vital to Europe’s security.
EUROPE ON THE EDGE
France’s longstanding party system has disintegrated. The radical right and left will be waiting in the wings to take over the presidency if Macron fails. Such an outcome would be a catastrophe for the EU, and for Germany, which, as German Foreign Minister Sigmar Gabriel has argued, profits more from that bloc than any other country.
But Europe and Germany would not simply suffer if Macron fails: they would benefit if he succeeds. A more balanced relationship between Germany and France would help put an end to Berlin’s reputation as a selfish European hegemon, reducing the anti-German sentiment that is rising across the continent. A successful reform program in France would show other EU states how to escape from their economic problems without succumbing to the populist backlash that is troubling the region. And victories at home could let Macron make gains abroad, to the benefit of the entire EU. German policymakers should do everything in their power to help France’s new leader make progress—and that means they must compromise with him. This presidency may offer the last chance to prevent the European project from crumbling for good.
This article was originally published on ForeignAffairs.com.
