Europe

Germany's Enthusiasm for Macron Won't Last

The leaders of France and Germany have different ambitions for Europe.

Still partners for now.

Photographer: Handout

When German Chancellor Angela Merkel congratulated Emmanuel Macron on his "magnificent" victory over Marine Le Pen in the French presidential election, there was no reason to doubt her sincerity. President Le Pen would have been such a disaster for Europe that the Brexit calamity would have seemed trivial in comparison.

Even so, Macron's success and the U.K.'s decision to quit the EU present Germany with mutually reinforcing problems. They put the German conception of Europe's future under pressure.

QuickTake The Euro

Macron is pro-Europe in the traditional French way: He wants a deeper European Union, with closer integration of fiscal policy in particular. Germany is pro-EU as well, of course, but has generally preferred making the union broader rather than deeper. Its goal has been to spread the blessings of peace and prosperity more widely, and especially to its east, rather than pursuing with French zeal a United States of Europe (to be led, incidentally, by France).

Seen in this light, the creation of the euro -- an act of radical economic deepening -- was Germany's great strategic mistake. In effect, it was the price Helmut Kohl paid for French acquiescence to German reunification, but German voters were never in favor of the single currency, rightly suspecting its constitutional implications. In case anybody needed reminding, Macron spelled these out during his campaign.

To work well, a single-currency area needs a prominent fiscal dimension. In the euro zone, monetary policy cannot work on a country-by-country basis to attenuate the ups and downs of the business cycle. Without targeted monetary stimulus, countries can get trapped for longer, and perhaps indefinitely, with slow growth and high unemployment. Fiscal policy has to be brought to bear. Yet, at Germany's insistence, the EU's Stability and Growth Pact, imposing limits on deficit spending and public debt, makes this difficult. And Germany has consistently resisted the idea of a "transfer union"; the European Union's budget amounts to a mere 1 percent of the total income of its 28 member states.  

Now that the euro exists, dismantling it would be a financial nightmare, so economic logic strongly favors a more deeply integrated EU. Macron gets that. He has talked about an EU budget ministry and centrally coordinated public investment financed with eurobonds, presumably with an EU guarantee. He's right -- but that's exactly what Germany doesn't want. Magnificent as she believed the election result to be, Merkel was quick to add that "German support cannot replace French policy-making," and her officials said Germany wouldn't be dropping its longstanding opposition to eurobonds.

Macron fought Le Pen by calling for more Europe, not less. It's true that a majority of French citizens count themselves pro-Europe, but compare Macron's stand with Prime Minister Mark Rutte of the Netherlands, who dealt with the Dutch brand of militant populism by making rhetorical concessions to it. This shows the strength of the French elite's commitment to deeper integration. If Germany isn't alarmed about that, it should be.

In resisting these political and economic pressures, Germany used to have an ally in the U.K. Not anymore. The principal skeptic on deeper integration -- so skeptical it refused to join the euro system -- is no longer around to provide cover for Germany's reservations and help check France's ambitions for the union. Almost all of that burden will now fall on Germany.

Merkel's dilemma will soon be apparent. Macron, with unsteady parliamentary backing at best, will struggle to get his way in Paris -- so the French structural reforms that he promised and Merkel is calling for will be hard to deliver. This will raise the political stakes for EU policy reform: Gains in that area will matter more for Macron, yet be harder for Merkel to justify to her own voters. If she continues to resist Macron's proposals, she'll embarrass the new president and further inflame French euroskepticism. If she gives way, her own euroskeptics will be energized.

Merkel might come to regret -- if she isn't regretting it already -- her failure to help Britain's David Cameron save face last year. His attempt to wring yet more concessions and special favors from the U.K.'s EU partners was brusquely rebuffed, and Cameron was humiliated. Much to his surprise, rather than accepting this refusal to budge any further, the Brits decided to go, leaving Merkel to make the case against deeper integration without their help. How do you say in German, "You don't know what you've got till it's gone"?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Clive Crook at ccrook5@bloomberg.net

    To contact the editor responsible for this story:
    Therese Raphael at traphael4@bloomberg.net

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