By Nora T. Kalinskij
German Chancellor Angela Merkel is in need of an ally, but she’s unlikely to find one in French President Emmanuel Macron. When the two leaders meet June 19, they’ll be trying to do what has eluded both countries for years: chart a path forward for the European Union. Their inability to agree on major EU reform has less to do with Macron’s or Merkel’s personalities than with the conflicting interests of the countries they represent.
France lost its dominant position on the Continent the day Germany unified in 1871. When Germany was divided after World War II, Paris saw the chance to build an international structure that could contain Germany in the future. The European Coal and Steel Community, the foundation on which the European Union was built, was intended to integrate Germany’s coal and steel industries – the critical components of military rearmament – with those of France and a handful of other Western European countries. Integration proceeded and expanded, but France failed in its objective.
Now Germany is divided again – figuratively, this time. Merkel and her party are facing an unprecedented challenge from their sister party in Bavaria, the Christian Social Union, over immigration policy. The CSU leadership has given her two weeks to forge an acceptable EU-wide consensus on reform, vowing to take steps that would force her hand if she fails. It’s a standoff that could bring down her government, but it’s just one of several topics of discussion between Merkel and Macron.
Macron’s proposed reforms are an attempt to put Germany back on a leash and return France to pre-eminence in Europe. He originally laid out a radical position that Germany could not accept: a “two-speed” Europe, whereby willing members would become more integrated and leave those resistant behind, with a joint budget and finance minister. Merkel rejected the proposal, as Macron expected, but it set the stage for compromises the French could accept and came with the bonus of making the Germans appear obstructive to France’s efforts to move the EU forward. In this way, Macron hopes to attract support from EU member states for French leadership in reforming the bloc.
Meanwhile, Germany, Europe’s economic powerhouse, wants to resist reforms that would burden it politically or economically. The most important condition that any reform must fulfill from the German perspective is to keep members committed to the common market and the common currency – without Germany having to pay for it, either literally or through lost sovereignty. More political integration would inevitably hamper Germany’s control over its purse. And Germany, whose economy depends on exports, needs the EU common market and the euro to facilitate trade with the rest of the Continent. Roughly two-thirds of Germany’s exports in 2016 stayed in Europe, and the bulk of that never left the EU. Without those exports, Germany lacks the internal demand to maintain its current level of economic growth and prosperity.
Germany and France agree on the problems but not the solutions. They agree in principle, for example, on the need to establish a European Monetary Fund, which, in addition to long-term loans, could provide short-term credit to member states with few strings attached. The purpose of these short-term loans would be to help members deal with economic problems before they threaten the stability of the eurozone. Germany’s position is that the EMF should be controlled by member states directly. In this way, the German parliament would retain its ability to veto eurozone aid packages. France, however, would prefer to keep the EMF and financial aid packages separate from the vagaries of individual countries’ politics.
Another point of disagreement is defense. Germany supports the French proposal for a joint European force to intervene in hotspots where the entirety of NATO may not commit (for instance, in West Africa). France suggested a “coalition of the willing” outside of EU structures and dominated by the most powerful military on the Continent – France’s. This coalition would augment France’s military resources, and unlike in NATO – where the U.S. dominates – France would be the ultimate decision-maker. It’s not hard to see why this is unappealing to the Germans. Germany would support this coalition only if it remains within existing EU defense structures and if the German armed forces stay under Germany’s parliamentary control.
None of this would necessarily be a problem in need of immediate resolution were it not for the threat of immigration and financial crises, which are pushing France and Germany toward compromise. The EU is still vulnerable to the same problems that threatened to rip it apart in the past decade. Looming largest is the danger that some member states have massive national debts that they may not be able to service much longer. Despite the common currency, spending is controlled by national governments, which means the policies of one member can still put the rest at risk (as was the case with Greece).
Now the biggest threat to the eurozone is Italy. The new Italian government’s economic plans can be summarized as fewer taxes, more social spending – a recipe for higher government debt. Even if the Italian economy sees growth as a result, that growth is unlikely to cover the costs. Carlo Cottarelli, former director of the International Monetary Fund, estimates that the new government’s plans could cost as much as 126 billion euros ($146 billion). If the time came when Italy needed to be bailed out, it would be the other eurozone members picking up the tab.
It’s a situation France and Germany would prefer to avoid, which means they need to make compromises. Macron, for instance, has given up on a joint eurozone budget and finance minister. Still, the EU needs to make a change, either by giving more power to Brussels or by giving some back to the member states. The latter is not an option because it would weaken the EU to an extent that France and Germany cannot abide. The former is not an option because France and Germany can’t agree. Ultimately, when the EU meets at the end of this month, it will probably have to do what it usually does – adopt watered-down reforms. At best, this might help with some of the symptoms, but it won’t treat the disease.
Meanwhile, hanging over the heads of Merkel and Macron as they talk is the threat that others could start making moves that force the EU’s hand. Austrian Chancellor Sebastian Kurz was busy last week orchestrating an “axis of the willing against illegal immigration” with Italy’s new government and Merkel’s own interior minister (and leader of the CSU). For them, watered-down reform may not be enough. If the EU does not get on with it, its members will get on without the EU.