Economic government: Do France and Germany understand the same thing?

By Jean-Marc TrouilleJean Monnet Chair in European Economic Integration, School of Management, Bradford University. This article was originally published in Slovak daily Pravda.

After years of hesitations, France is back in Europe. François Hollande laid out key proposals for an economic government endowed with its own president, which will meet each month to discuss economic and budgetary issues; a drive to tackle youth unemployment; a fully-fledged European energy community to facilitate the transition towards carbon-free energies; and finally a new step towards eurozone integration with its own budget and the ability to borrow.This whole panoply of initiatives may well serve to distract attention from recent French recession figures. However, one thing is much more significant here: for the first time in twenty years France has answered yes to further European integration. The project outlines are still vague, but France is now in favour of more integration, economic as well as political, which also implies revisiting treaties. ‘It is no longer a matter of political sensitivity’, he said: ‘it is a matter of urgency.’ Hollande has acknowledged that more Europe will be necessary to end the crisis. With this U-turn, Germany is no longer alone in shaping future political integration.

It does not mean that the next two years will be an easy ride. Although both countries now agree that an economic government will be necessary, their visions are still quite far apart. For Angela Merkel, the German Chancellor, the role of this institution would be restricted to controlling national budgets. Such limitations would not satisfy Paris’ Keynesian ambitions to include macroeconomic control. The issue of democratic control would also need to be addressed since a substantial transfer of sovereignty would take place.

Since the single currency has been on the negotiating table, the principle of establishing an economic ‘government’ in the eurozone has been a recurrent demand from France. But its dirigist approach was not compatible with German expectations that the ECB should remain independent. Contrary to France, Germany has, for historical reasons, been consistently cautious about state intervention in the economic sphere. Setting up an economic government also requires sharing substantial areas of sovereignty, an area where Germany, who made a major concession by sharing its D-Mark, feels more comfortable than France.

Further steps towards eurozone fiscal and banking integration will require a Franco-German compromise, in terms of sharing sovereignty to allow for an institutionalised coordination of national budgetary policies, whilst accepting the French proposal of a Eurozone government. Some convergence has already taken place between two initially far distant positions. Berlin has gradually accepted that some form of economic ‘governance’ was required. Then, in August 2011, both countries expressed the view that a ‘real economic government’ should coordinate the economic and fiscal policy of the eurozone. However, French officials have systematically appeared hesitant to take a major federalist leap forward, which is Germany’s condition for greater eurozone solidarity.

After a year in power, Hollande now fully appreciates the crucial importance of Franco-German cooperation, which he has also underlined in his press conference. Hollande’s proposal therefore appears to me more than just a gimmick. What remains to be seen is how far France will agree to go down the path of budgetary control (what if one day Brussels or Berlin turned down French budget proposals due to too high defence expenses?), and whether Germany will be more conciliatory with regard to debt mutualisation, the role of the ECB, or its golden rule of 0.5% deficit.

Hollande also needs to send a signal to Germany and Brussels that the French-German intention (jointly declared in Berlin on 22 January 2013) to make headways by the June 2013 EU Summit towards more eurozone integration were not empty words. The hand that Hollande is holding to Germany is also a challenge, an invitation for Germany to show that it will eventually honour promises for increased solidarity in the eurozone.

If Germany and France, respectively first and second economic powers in Europe, agree, it is likely that other eurozone countries will follow suit. Some convergence of views is taking shape. But to propose a joint vision for Europe’s future, a lot of compromise will still be necessary.

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One Response

  1. A França e a Alemanha devem tere uma melhor vizão sobre o futuro da Europa por iso é preciso lidar simultaneamente com as consequências de todas estas mundanças por isso é preciso travar esses aumentos de desigualdades que irão aumentar nas economias dos paises emergentes da UE

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