Aug. 23 (Bloomberg) -- German Chancellor Angela Merkel and French President Nicolas Sarkozy have never held hands as Helmut Kohl and Francois Mitterrand once did at a World War I battlefield. Merkel worries they don’t even talk enough.
After no fewer than seven one-on-one meetings the past 18 months -- in addition to parleys at summits -- the leaders of the biggest European economies have yet to hit on an effective solution to the crisis stalking the euro, Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in an interview.
“Poor relations between Merkel and Sarkozy are one of the big problems of dealing with the debt crisis because it’s up to European Union leaders to handle this,” Erixon said. “It’s not a personal relationship that can deliver grand things because the trust isn’t there.”
Their response last week to investor pleas for a new approach -- such as backing euro-area bonds or a bulked-up bailout fund -- highlighted a lack of leadership in Europe, say investors and analysts. Their joint statement after a meeting in Paris Aug. 16 deepened a slide in global stocks as they rejected collective borrowing and emphasized the need for responsible budgeting. The cost of insuring European bank debt rose to a record yesterday and has exceeded the 2009 peak in the wake of Lehman Brothers Holdings Inc.’s collapse.
They were “as far away from reality as they ever have been throughout the year-long European sovereign debt crisis,” Howard Wheeldon, senior strategist in London at the brokerage BGC Partners, wrote in an Aug. 17 note to investors.
The possibility some economists predict of a euro breakup - - at odds with what Sarkozy on Aug. 16 called his and Merkel’s “absolute determination” to defend the single currency -- would undo the inheritance of their groundbreaking predecessors.
Merkel, 57, and Sarkozy, 56, are the first leaders of their countries born after World War II, the last of three Franco-German wars between 1870 and 1945.
“There’s a real generational shift with Merkel and Sarkozy and their approach to the EU,” Jan Techau, director of the Brussels-based European center of the Carnegie Endowment for International Peace, said in an interview. “They didn’t experience the war.”
Former German Chancellor Helmut Schmidt, 92, born before the Treaty of Versailles was signed in 1919, joined with French President Valery Giscard d’Estaing, 85, to set up the European Monetary System and the forerunner of the Group of Eight summits. The 1970s were the “golden age of Franco-German relations,” Giscard said in a 2009 essay.
Kohl, 81, who as chancellor from 1982 to 1998 oversaw German reunification and was an architect of Europe’s economic and monetary union, served as a 12-year-old boy in a school brigade that cleared rubble after allied air raids on Nazi Germany and was present as bodies were removed, according to the first volume of his memoirs, “Erinnerungen, 1930-1982.”
Throughout his career Kohl said European integration is above all about making war in Europe impossible. In a 2010 Bild newspaper interview, Kohl said “there’s no alternative to Europe, especially in the question of war and peace.”
Mitterrand, who died in 1996, was captured by the Germans during World War II. He later escaped and worked with the French resistance against Nazi occupation.
“For much of the history of the European Union, the alliance between Germany and France was the main motor for integration,” Katinka Barysch, deputy director of the London-based Centre for European Reform, said in a study published last year. “The euro crisis will make it harder to paper over Germany and France’s differing interests and ideas about the future of the EU.”
To be sure, discord intruded over the decades as France opposed policies that risked opening the way for Germany to re-assert a dominant role. Mitterrand initially resisted German reunification sought by Kohl and, later, Jacques Chirac rebuffed Gerhard Schroeder as Germany sought greater EU voting power.
To establish a functioning relationship, Merkel and Sarkozy had to overcome contrasting personalities, their advisers have said. Their styles were “like fire and water,” according to a U.S. diplomatic memo published by Wikileaks.
Merkel, who grew up in Communist East Germany and has degrees in physics and quantum chemistry, emphasizes caution and a deliberate approach to problem solving. “I am a person who only draws conclusions after having seen and analyzed results,” Merkel told reporters May 10. “Nothing will change me on this.”
Doesn’t Know France
A German official told reporters at a Group of Eight summit May 26 in Deauville, France, that there’s insufficient communication between Merkel and Sarkozy. She may not know France well enough and the lesson of differences on issues such as Libya is that the two must improve communication, the official said.
In contrast, Sarkozy, a lawyer and one of two presidents in the past 30 years who didn’t attend France’s elite Ecole Nationale d’Administration -- a training ground for government leaders -- deploys “hyper-activism on every front,” according to a U.S. cable on him dated Dec. 14, 2007, quoting an unnamed European diplomat. “Just being in a room with Sarkozy is enough to make anyone’s stress levels increase,” it said.
The euro crisis has put Sarkozy in the role of bridge builder to Merkel, who has confronted resistance among EU counterparts, her voters and the ruling coalition to her approach to bailouts.
He even had to overcome her opposition to holding a summit meeting of euro-area leaders last month to counter contagion that was lapping at Italy and Spain. The meeting resulted in an overhaul of the 440 billion-euro ($635 billion) European Stability Facility, though no new financial commitments.
Along the way, Sarkozy has convinced the German leader to drop demands for automatic sanctions on nations that break EU deficit rules. Two months ago, he got Merkel to retreat from calls for bondholders to be forced to shoulder part of the Greek rescue. After a June 17 meeting with Sarkozy in Berlin, Merkel told reporters such participation would be “on a voluntary basis,” preventing a collision with the European Central Bank.
Both leaders say that their approach aimed at medium- and long-term results is the way to deal with the crisis.
Speaking to reporters after the Aug. 16 Paris talks, Merkel said only incremental moves will restore confidence in the euro. “I don’t think we can solve the problem with a single big bang.”
When Kohl and Mitterrand clasped hands at a rain-swept World War I cemetery at France’s Verdun battlefield in 1984, where more than 300,000 French and German troops were killed in 1916, the image went around the world. The photo symbolized the Franco-German reconciliation that powered European integration.
“What Europe needs now is more leadership like we had under Kohl and Mitterrand or Schmidt and Giscard,” Techau said.
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