Monday, December 05, 2011


"Nixon had the amazing idea of asking me what I thought of de Gaulle's views on Europe....'I found it fascinating', I said. 'But I do not know how the President will keep Germany from dominating the Europe he has just described'. De Gaulle, seized by a profound melancholy at so much obtuseness, seemed to grow another inch as he contemplated me with the natural haughtiness of a snowcapped Alpine peak toward a little foothill. 'Par la guerre', he simply said."

Henry A. Kissinger, The White House Years. 1979, p. 110.

"For the first time in the history of the EU, Germany is the unquestioned leader, and France is number two. Since the financial crisis struck in 2008, the economic inequality between France and Germany has grown. Although regular summits between Angela Merkel and Nicolas Sarkozy maintain the appearance of parity, France's higher levels of debt and public spending, its lower level of exports, its less well capitalised banks and its rising borrowing costs vis-à-vis Germany have forced it to accept German leadership on economic policy.

Last week I talked to officials in Paris about the eurozone crisis. The franker among them admit that on many of the key arguments – should the eurozone be run according to strict rules that minimise the scope for political discretion, should there be a treaty change, should the European Central Bank (ECB) intervene massively to support governments in trouble, and so on – German views have prevailed.

French officials fret about the sustainability of the euro. Their analysis is similar to that of the Anglo-Saxons: they worry that the German medicine being applied to the eurozone ignores the importance of demand and growth, and that few German policy-makers understand financial markets. But unlike the Anglo-Saxons, they think it better not to lecture the Germans in public on what they should do. The French think that the Germans will probably do what it takes to preserve the single currency, in the end. But several officials expressed the concern that, by the time the Germans decide to move, it may be too late to save the euro.

The French are reticent about the German plan to change the EU treaties. They assume that a new treaty will have to be preceded by a convention, as was the constitutional treaty. But when the convention – consisting of MEPs and national parliamentarians, as well as governments – meets, can the Germans ensure that it discusses only the euro, rather than every subject under the sun? Then there is the difficulty of ratifying a new treaty. The Irish, for example, would have to hold a referendum and in their current mood would probably vote no. But the French are going along with treaty change, because they hope that a new treaty with strict rules on government borrowing will make it easier for the Germans to change their current policies on the euro. In the short term that means accepting that the ECB should become a lender of last resort to eurozone governments.

In the forthcoming treaty negotiations, the French want to balance the German emphasis on budgetary discipline with some distinctively French thinking. Officials talk of treaty articles on economic growth and the co-ordination of macro-economic policy, tax rates and labour market rules. They also want to amend Article 136 of the Treaty on the Functioning of the European Union, which allows the eurozone countries to adopt new rules on budgetary discipline. The French want to broaden the scope of that article, beyond the Germanic preoccupation with budgets.

The French hope that the new treaty will pave the way for eurobonds, but know that collective eurozone borrowing only makes sense once budgetary policy has been centralised, which will take several years. In the meantime the French think that the eurozone needs a European Monetary Fund (EMF) to support countries in trouble. An EMF would, like the IMF, lend to countries that cannot borrow commercially, and set conditions. It would also lend preventively to countries that might face problems. It could be based on the European Stability Mechanism, the bail-out fund that is currently under construction.

Many parts of the French government would be happy to see an EMF become a rival source of expertise and power to the European Commission, though the Trésor has doubts about such duplication. France would like an EMF to take decisions by majority vote, so that it could move quickly and not worry about, say, a potential Slovak veto. But the Germans generally prefer unanimous decision-making on bail-outs....

The French government worries about Le Pen – who is currently polling between16 and 21 per cent. In past presidential elections the Front National has scored better than the polls predicted. If the euro crisis worsens, and requires France to adopt painful austerity measures, Le Pen's implacable hostility to the single currency could earn her extra votes. She could get through to the second round of the presidential election in May 2012, as her father did in 2002, though she could not win. The presidential election is unlikely to change the broad thrust of France's EU policy, but the euro crisis and the increasingly dominant role of Germany could push the French people in a eurosceptic direction".

Charles Grant, "The French Learn Followership," The Centre for European Reform. 30 November 2011, in

One of the results of the yet unfinished crisis of the Eurozone is that in superseding of Mao's Tse-tung's infamous dictim, 'economics takes command'. And with this change over, it is Berlin rather than Paris which is truly in the driving seat as per formulating policy for both the seventeen members of the Eurozone and the twenty-seven members of the European Union. The fact that Berlin's ideas as how to resolve the crisis of the Eurozone are dangerously inadequate if in fact not dangerous, as sort of modern-day Brunningism, merely highlights Berlin's almost complete dominance 1. This 'dominance' one should remember is however not entirely structural in nature. While Berlin can boast that it is the fourth largest economy in the world, and the largest exporter, and that it has so far ridden out the financial crisis since 2007, infinitely better than any other large, advanced industrialized country, that per se does not obviate the fact that Germany's economy in the overall context of the Eurozone or the European Union, is not so large that it can issue diktatto the other members of the two unions. Which in turns highlights the near constant muddle that is current European Union policy making. German pre-dominance such as it is, is not of the type that can result in quick action on policy. And if nothing else, the financial and economic crisis of the last four plus years now, have shown repeatedly is that the traditional 'trade-offs' and bargaining that makes up European Union and Eurozone decision-making is antithetical to successful policy in the current situation. Hence what Martin Wolf in to-day's Financial Times characterizes as 'Euro-porridge', rather than effective policy which will save the Eurozone. Noting that:

"If the most powerful country in the eurozone refuses to recognize the nature of the crisis, the eurozone has no chance of either remedying it or preventing a recurrence. Yes, the ECB might paper over the cracks. In the short run, such intervention is even indispensable, since time is needed for external adjustments. Ultimately, however, external adjustment is crucial. That is far more important than fiscal austerity" 2.

1. Martin Wolf, "Merkel failed to save the Eurozone." The Financial Times.
7 December 2011, in

2. Ibid.


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