The European Council on Foreign Relations

Do we go that far to save Europe?

Date: 22nd June 2012  |  Author: Ulrike Guérot,

Categories: Euro Crisis, Germany in Europe,
Tags: , euro crisis, euro crisis , federalism, france, germany, germany , eu

Yes, we do! Germany is putting forward bold plans for a political union. This interim report is the result of a working group of ten like-minded foreign ministers – among them the foreign ministers of France, Spain, Italy, Poland, Austria, Portugal, and the Netherlands – who met a couple of times in recent months. This is interesting in various aspects: first, the initiative gives ownership back to smaller euro countries: Merkozy is over!  Second, Germany is back as the essential agenda setter for the future of the EU and it is opening up the discussion beyond euro rescue umbrellas. The presented plans for more European integration are not only far reaching regarding the Euro (the report includes proposals for a European Monetary Fund (EMF) or a European Treasury) but also touch on sensitive things such as a European Army. It is only a discussion paper, of course, but one of an intense and serious discussion. And one which finally tries to bring economics and politics together in Europe!

In the report, the euro crisis is finally put back into its historical context in order to develop a strategic dimension of and a vision for Europe in the world. In contrast to that François Hollande is continuously repeating Franco-German dichotomies on growth. There is not much of a political vision of Europe in that!

This is where history seems now repeating. As somebody who had the chance to observe the post-Maastricht years and the proposal of the Schäuble-Lamers paper on core-Europe in 1994 – which by the way already argued that the countries that would enter monetary union need to go for much more political integration including common fiscal, budget and social policies – it feels  like a perfect déjà vu. This time, however, France must go first!

Beyond claims for growth, France is putting emphasis on the creation of a banking union, including a common guarantee scheme for European deposits. That is a fair and justified pledge: a monetary union cannot function with banks that operate transnational, but which are bailed out nationally when they are in trouble.

Still, this is the entry-step into debt mutualization and the Germans are repeating their good old argument that this requires political union. “L’Allemage paiera”, this tacit French subtext of the current Franco-German arm-wrestling, falls short as an argument. In 1992, Germany accepted monetary union without political union, although the political establishment in Germany was skeptical. Political union was then offered to France on a silver plate in 1994, before the enlargement to the Nordic countries, but France refused, because of disputes between the Gaullists (by then RPR) and Valéry Giscard d’Estaings’ UDF. Twenty years later, it is time that France understands the emergency of the political argument in Germany. The forthcoming anniversary of the Elysée Treaty in January 2013 would be a fantastic occasion for the tandem to take the EU to the next level. Committing to such an agreement now in an ‘acte fondateur’ is the least than Germany can expect before signing up to a banking union.

Laurence Parisot, the President of the French Employers Association, said on German radio this week that French industry also wants a federal Europe. François Hollande should listen to her. Germany and Spain just voted for the fiscal compact, which is another sign for a new dynamic in Europe.

If markets have been pressuring Germany so far for not doing enough to rescue the euro now it may be the time for the markets to push (and perhaps bash) France.  From a German perspective, Europe needs sound fiscal policies and political federalism, both conditions for growth – and two topics France will need to deliver rather sooner than later.

Germany has made errors in the crisis management. However, the Anglo-Saxon press has been working on the narrative that Germany will be held responsible for a Euro-break up if it happens. But there seems to be a counter argument developing  (see for example Hans Werner Sinn’s article in the NYT last week) What is needed now is a very important nuance: France is now the tipping country to make a more integrated Europe happen – or not! ‘Yes, we go that far beyond money to save Europe and the Eurozone’ – that’s what the Germans now want to hear from the French!