Franco-German Decoupling

http://www.nytimes.com/2014/09/04/opinion/sylvie-kauffmann-franco-german-decoupling.html

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PARIS — There is something misleading about the current political excitement on both sides of the Seine. The ouster of three rebel ministers by a surprisingly firm president, a government reshuffle, a standing ovation delivered at Medef, the employers’ union, for the Socialist prime minister who dared to proclaim, “I love business!”: All the action was set in Paris. Yet one could fantasize that, some 900 kilometers away, Berlin’s invisible hand was quietly at play.

Germany determines so much of France’s economic life these days that it seems like the proverbial 800-pound gorilla in our political process. Last week’s crisis erupted when the economy minister, the leftist Arnaud Montebourg, called for an alternative economic policy, in an interview with Le Monde. Nothing really new there, but he went one step too far when he launched an attack on Germany. “We need to raise our voice,” Mr. Montebourg said. “Germany is caught in a trap of austerity that it has imposed across Europe.”

Prime Minister Manuel Valls didn’t wait long to let it be known that Mr. Montebourg had crossed a “yellow line,” when his office declared: “An economy minister cannot use such words ... to talk about a European partner.” Unlike President Obama’s red lines, yellow lines in France are usually enforced. Two days later, Mr. Montebourg was out.

To France, Germany is not just any “European partner” — it is the most important partner. Together, these two founding members of the European Union are supposed to form “an engine,” “a tandem,” “a couple.” They are the pillars of Europe.

But the Franco-German engine has stalled. Battered by the euro crisis, the famous couple is decoupling. The imbalance between the German economy, strengthened by reforms launched by Chancellor Gerhard Schröder well before the crisis struck, and the French economy, unable to recover its competitiveness, is so deep that it is ruining the whole European dynamic.

On Aug. 22 the German newspaper Handelsblatt dedicated a cover story to “The French Patient” and “the economic decline of what used to be a proud nation.” In “A Tour of France: Examining the New Sick Man of Europe,” Der Spiegel this summer poked fun at those French people dreaming of having “la mannschaft” instead of “le malaise.”

Fifteen years ago, Germany was “the sick man of Europe.” Today it is France’s turn. One difference, though, is that 15 years ago the common currency, the euro, was just being launched. Today both economies are much more integrated and must enforce a common budgetary policy. Thanks to the strength of the German economy, Berlin has the upper hand.

President François Hollande has gone through phases about this. Early in his term, he antagonized Chancellor Angela Merkel by trying to head a group of Southern European countries favoring pro-growth policies. It was a disastrous mistake. A master of compromise, he then tried to recover using his left wing, allowing Mr. Montebourg and his friends to vent their anger at home against Bismarck and Ms. Merkel’s “intransigence,” while ostensibly trying himself to play the perfect partner in the Franco-German couple. That didn’t work either.

Desperate to get the French economy back on track, Mr. Hollande is trying something new: a government unanimously committed to his vision of structural reforms and a team that won’t utter a word against the German economic line.

That doesn’t mean that Mr. Hollande has given up hope of extracting more flexibility from Ms. Merkel on the pace of deficit reduction. The great debate on austerity versus growth is closing in on the chancellor, as Nobel Prize laureates, newspaper editorials and now, more importantly, Mario Draghi, the president of the European Central Bank, advocate demand-side policies to complement structural reforms in order to fight unemployment.

Those who wonder why France doesn’t just do what Germany did under Mr. Schröder over a decade ago forget one crucial factor: Back then, the economy was growing; cutting the budget deficit in a zero-growth environment is a different challenge. Even the German economy is slowing down. The French president is betting that, having provided Ms. Merkel with all the evidence that this time he finally means business, Berlin and therefore Brussels will give him some breathing space.

Halfway into his term, Mr. Hollande has come to acknowledge the power of Germany. Today the real economic leader of the eurozone is Wolfgang Schäuble, the German finance minister, who has held the job for five years. It is Mr. Schäuble who opposed the candidacy of Pierre Moscovici for the top economic job at the European Commission because of Paris’s record on deficit reduction. (After much wrangling, Ms. Merkel finally compromised: Mr. Moscovici should get the post, but a more fiscally orthodox Finn, Jyrki Katainen, will be placed above him as vice president of the commission.) It is Mr. Schäuble with whom Michel Sapin, the French finance minister, confers at every important political juncture, as he did again last week after the government reshuffle.

Yet it would be too simplistic to see this process, as the French left tends to do, as merely humiliating subservience. Political intertwining between France and Germany cuts both ways: Germany needs France as much as France needs Germany. When German diplomats, businessmen, politicians or even journalists express their deep concern to French colleagues about the Gallic crisis, they are actually sincere. A weak France is not in Germany’s interest, not only because France is its first customer, but also because the last thing Germany wants is to be leading alone. The way Ms. Merkel carefully includes Mr. Hollande in her dealings with President Vladimir Putin of Russia is revealing: Even though she is in the driver’s seat on the issue of Ukraine, generally on foreign and security policy she wants to be seen as working with France.

The Germans would love to freely enjoy their successes, unhindered by the burden of history. The eurozone would be much better off powered once again by a dual engine. For France and Germany, recoupling is the only option — if only their leaders could help.

Sylvie Kauffmann is the editorial director and a former editor in chief of Le Monde.