This EU Won't Work

Emmanuel Macron has big plans to revive France and the EU. In France he faces many difficulties, not the least of which is getting some La République En March! deputies into parliament in the forthcoming election. More relevant to this blog he has some quite radical ideas for reforming the EU but he will face opposition from Germany, which will be reluctant – or perhaps completely unwilling – to permit the treaty changes that his ideas will require. And several countries’ constitutions may require referendums to approve any new or revised treaties, an appalling and risky prospect in the current climate of voter opinion. 

On May 8 Ambrose Evans-Pritchard (AE-P) picked up the issue in the Daily Telegraph. On May 12 the EU Observer (EUO) addressed the same issue. These are our sources for this post.

AE-P gets straight down to it: “French voters have picked an apostle of Europe and an arch-defender of the Franco-German axis. While this is welcomed with jubilation by some in Berlin, it raises thorny questions that
others would prefer left unanswered.”

EUO is only a little more wordy: “In Emmanuel Macron, she [Angela Merkel] will meet the man who staved off the far-right threat and possibly saved the European Union from breaking apart, but also a man whose ambitious ideas for shaking up the eurozone are anathema to many in Germany, particularly in her conservative Christian Democratic Union (CDU) party.”

Both writers recognise, as does Macron, that the previously strong relationship, leading the EU, between France and Germany has weakened in parallel with the different directions their economies have taken. Germany has flourished in the eurozone while France has not. Germany has built up substantial surpluses; France has continued in deficit. Unemployment in Germany is less than 5%; in France it remains nearly 10%. Germans are confident; the French are grumpy. 

AE-P: “If France is not reformed, we will not be able to regain the confidence of the Germans,” Mr Macron told Ouest-France. “After that Germany must ask whether its own situation is tenable. It is accumulating surpluses which are neither good for its own economy nor for the eurozone.”

EUO: “The incoming French president has already turned into a German political issue, with the two biggest parties, partners in the current coalition – the CDU and the centre-left Social Democratic Party (SPD) – seizing on the opportunity to carve out opposing approaches to him in the run up to the 24 September general election.”

Angela Merkel will wait and see but, “I don’t see that changing our policies would be the priority.” That is as clear as can be – Germany, particularly in the run-up to their general election, will not want to do anything that puts their strong position at risk. 

EOU: “It is unlikely that Macron will get far with his eurobonds suggestion, which many in Germany see as a backdoor to a transfer union, in which Germany ends up liable for the debts of other eurozone members.”

The Social Democrats in Germany, led by Martin Schulz who was until recently the President of the European Parliament, are more enthusiastic about Macron’s proposals.

AE-P: “Mr Macron has allies in Germany. The Social Democrats (SPD) have some sympathy for his Keynesian view. A few want a new ‘Elysee Treaty’ to relaunch the broken Franco-German engine.”

(See our post ‘Trick or Treaty’ for an outline of Germany’s orthodox economic ideology, which has been taken up by the EU and contrasts with France’s more Keynesian approach.) 

EUO reports Sigmar Gabriel, former economy minister and leader of the SPD, saying “the time of financial orthodoxy and finger-wagging must finally end”, while Martin Schulz says that “we need a strategy to get more growth and more jobs in the euro zone”.

“We need to do our share and be willing to compromise in order to ensure that the eurozone has both a viable political and economic future,” Thorsten Benner, director of the Global Public Policy Institute (GPPi) in Berlin, told EUobserver. He added that Macron will need some gesture of support from Germany if he is to succeed at home. “After the elections I think Merkel needs to move otherwise we’ll blow the last very promising opportunity to actually reform the eurozone and put the European project back on a viable good track. … We need to be mindful that Macron, in order to make good on his domestic reform promises, also needs to show to the French public that Germany is willing to move” he said. But pundits regard the likelihood of the SPD winning power in Germany as slight. 

AE-P: “Yet there are limits. Mr Macron’s plans would require a new EU Treaty, opening a can of worms that several states are determined to avoid. Berlin has no intention of sharing Italy’s debts, whatever France does.”

Germany’s top court says EMU fiscal union and debt-pooling would require a change to country’s constitution. “Politically, that is absolutely impossible,” said Heiner Flassbeck, former economy minister and now at Hamburg University.

We’ll leave the last words with AE-P and Emmanuel Macron: “This is what Mr Macron meant when he warned last week that the European experiment will blow up unless it is rebuilt on better foundations. “We have to listen to our people, and listen to the fact that they are extremely angry, and understand that a dysfunctional EU is no longer sustainable,” he [Macron] said.

“Failure means “Frexit and the Front National again”. The warning was directed straight at Germany.”