08 May 2017

The Economist: Angela Merkel should seize this chance to remake Europe

German celebrations of Emmanuel Macron’s victory had barely begun last night when the first arguments about it broke out. The French president-elect’s longstanding calls for a “new deal” between his country and Germany were the impetus. In return for French structural reforms and fiscal restraint Mr Macron wants Berlin to support the closer integration of the euro zone, including joint investment projects, Eurobonds (common debt) and a finance minister, budget and parliament for the 19-state currency area. All of which drives a trench through the Berlin political landscape.

On the one side are most in the centre-right CDU/CSU, the liberal FDP and especially in the finance ministry under Wolfgang Schäuble, the CDU finance minister. This camp opposes all of Mr Macron’s most ambitious proposals. It is backed by the majority of public opinion and the Bild Zeitung, Germany’s most-read newspaper. And it tends to the belief that the country already pays disproportionately into the European project, that its current success was built on tough reforms in the last decade and that struggling Latin economies like France need to go through the same painful but necessary process. This outlook has deep cultural roots in Germany’s aversion to loose money; the word for “debt” in German is the same as the word for “guilt”.

On the other side are most of the centre-left SPD, the Greens and the foreign ministry under Sigmar Gabriel, the SPD politician who counts Mr Macron as a personal friend. On at least some points they are joined by internationally-minded CDU figures like Norbert Röttgen, the chair of the Bundestag’s foreign affairs committee who is close to Jean Pisani-Ferry, Mr Macron’s top economist. This camp, backed by the liberal and centre-left broadsheets, worldly think-tanks and much of German Brussels, tends to stress the advantages Germany has reaped from the euro and to argue that it should put its wagging finger away and acknowledge a responsibility towards weaker members of the club.

The disagreements between the two sides have been bubbling under for years. But the French election has brought them to the surface. [...]In other words: Mr Macron can forget about integration until he sorts out the French economy.

In the past hours the battle lines have hardened. In a press conference this morning Mrs Merkel issued nice words about working together—the chancellor is authentically delighted at Mr Macron’s win—but was noncommittal when pushed about macroniste proposals like a common investment fund. Her spokesman was more categorical: “the German government’s rejection of Eurobonds remains unchanged”. On the opposite parapet foreign minister Gabriel, who has made it his mission to shift German opinion on the euro zone, called on his country to “give up our financial orthodoxy” and “join France in building a Franco‑German investment fund”. Likewise Michael Roth, the SPD Europe minister, has urged Wolfgang Schäuble to stop blocking the French proposals.

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If anyone can persuade Germany of this case, it is Mr Macron. It is widely noted in Berlin how pitch-perfect he was on his two pre-election trips here; how well he seemed to understand German sensitivities. His January speech at the Humboldt University, which repays careful reading, deftly intertwined the case for French reform with the case for euro-zone integration, all within a whiggish argument about Europe’s past and future. Moreover, after the French legislative elections next month attention will shift to the German elections on September 24th, and probably to an Italian election after that. That will buy the president some six to twelve months to push through reforms (which greatly depend on the results of those French legislative elections) winning him trust in Berlin. Mr Macron seems to get this: the trust and the credibility have to come first.

[...]If Mr Schulz becomes chancellor Mr Macron will suddenly have a very powerful fellow traveller. Much more likely is that Mrs Merkel will keep her job, at the helm of another CDU-SPD coalition. But even so, polls suggest the SPD will be larger in the Bundestag than it is now and thus might be able to seize the all-important finance ministry in coalition talks. That too would be good news for Mr Macron.

The outlines of a mutually acceptable “new deal” are clear. Closer defence and security co-operation (France is trying to cut spending, Germany has committed to spending billions more) will come easily. And even on the euro zone, argue Thorsten Benner of the Global Public Policy Institute in Berlin and Thomas Gomart of the Institut Français des Relations Internationales in Paris, there is a compromise to be forged. This would start with Mr Macron and Mrs Merkel promptly creating a Franco-German investment fund, committing jointly to a multi-speed Europe (an idea to which the chancellor has warmed in recent months) and forging a new front against authoritarianism in Poland and Hungary.

After the election they would build on this with a euro-zone budget supporting infrastructure and education, a joint deposit-insurance fund to protect bank customers and closer integration of services markets. Proposals such as this prove that, as Daniela Schwarzer of the German Council on Foreign Relations puts it, Germany can reconcile its temperamental aversion to risk with new measures that strengthen the euro zone.

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Yet Berlin seems depressingly obdurate. Many German officials reject such pragmatic measures automatically, without pausing for breath. One recently told me he warmly welcomed the talk of a new deal, before summarily dismissing every item on Mr Macron’s shopping list one-by-one. Mrs Merkel was characteristically cryptic in her comments this morning, but pointedly declined opportunities from reporters to welcome her new French counterpart’s ambitions for the euro zone. It seems grimly conceivable that Berlin will nod and smile politely when Mr Macron visits again next Monday, but cling to its own tired orthodoxies when it comes to the crunch.

That would be a tragic, short-sighted and possibly disastrous waste of the opportunity. [...] Investing in a French resurgence under Mr Macron would help revive the Franco-German engine and thus relieve Berlin of the sort of implied hegemony it spurns.

And then there is French politics. As Mr Gabriel has pointed out: “If [Mr Macron] should fail, Ms Le Pen will assume the presidency five years from now and the European project will be thrown to the wolves”. Amid the relief in Berlin, some here lose sight of the facts that almost half of French first-round voters backed candidates of the nationalist far-left or far-right, that just a few percentage points here and there prevented a run-off between those two extremes, and that Ms Le Pen could yet usurp Mr Macron in 2022.

If she does, and the euro zone falls, Berlin will feel the consequences. Its economy is built on supply chains that wend their unimpeded way around the continent. Its whole international vocation depends on its European identity. Germany cannot pretend France is just another country, just another line on the spreadsheet. As Willy Brandt said of his nation's reunification: “Things grow together which belong together”. France and Germany are at once so foreign to one another, so temperamentally and historically different. Yet they are also natural allies and irredeemably interdependent. If Macron fails, Europe may fail. And if Europe fails, Germany fails.

Mrs Merkel can prevent this. German public opinion may not be favourable to Mr Macron’s sensible proposals. But the chancellor is powerful and popular. She looks set to win a fourth term in September and is not likely to seek a fifth one four years later. She has taken calculated gambles before: transforming Germany’s energy supply from 2011 and letting in hundreds of thousands of refugees from 2015. She has enough political capital in her account for at least one more splurge. Europe’s future is surely worth the outlay. “From September onwards it will be all about Merkel’s legacy,” Mr Benner tells me: “And letting the only plausible route to strengthening the German-French relationship for the greater good of Europe go to waste and preparing the ground for the extremes to take over France is nothing you want to be remembered for.” He has a point.

Full article on The Economist

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