Paris, Berlin: Rekindling a faded affair

Franco-German relations are reminiscent of a long, difficult marriage. Both sides have grown old, they are out of new ideas, they are tired of each other but cannot live without one another. It is precisely thus – France and Germany were and remain the core of European integration. Not because they are always in agreement or always share the same interests, but because they both realize the strategic significance of reaching a common understanding.

The will to compromise is paramount in both countries. With his September speech in the Sorbonne, French president EM sought to inspire fresh thinking on Europe. MEGA – Make Europe Great Again – that is his agenda. His proposals now call for a German response. And this response cannot be reduced to the question “how much will all this cost Germany?”, confirming the claims of the philosopher Jürgen Habermas in a recent essay he wrote for Spiegel magazine. Germany is the biggest winner of the single market and the common currency – and this status cannot be preserved at zero cost.

Germany’s care-taker government cannot, however, respond to Mr Macron, and it may take a while for a new government to be formed. Before that, France was in a similar situation, in the run-up to its presidential and parliamentary elections. The momentum will take some time to pick up. It is significant and unfortunate that Germany seems unfocused, afraid and at the same time smug, while none of its parties – except the Greens – was willing to say in the preelection campaign what is required to safeguard the future of Europe. The Macron approach – an overtly pro-European campaign – seems beyond the limits of German reality. The danger now is that we will miss the opportunity to restart the European integration process, that we so badly need.

France and Germany must, of course, cooperate closely on foreign and security policy, including the fight against terrorism and the handling of the refugee crisis and its causes.

On the economic front, there are two key areas where Franco-German leadership is needed in Europe: one is Eurozone governance reform; the other is business collaboration.
The Eurozone may have left the economic crisis behind, but its structure remains vulnerable. These vulnerabilities must be fixed before the outbreak of the next economic downturn. President Macron, along with many others, has specific proposals to achieve this: a euro area finance minister, a euro area budget to finance investment and protect against asymmetric shocks, the completion of the banking union. He also knows that he must restore confidence in the French economy by implementing structural reforms and meeting the SGP targets for the deficit, before he can turn to his vision for Europe.

On deepening Eurozone integration, the German election campaign offered a number of “red lines.” In my view, however, there is room to forge a common Franco-German position, which can then be outreached to other member states. Its starting point is the fact the Eurogroup is the core of eurozone economic governance. A full time euro area Finance Minister (who will not be an EU Commissioner), accountable to the European Parliament, will be the face of eurozone fiscal policy, the way the president of the ECB is the face of monetary policy. The holder of this office will have the chairmanship of the ESM and in determining the priorities of the small euro area budget, to be funded by new taxes to be levied by member-states (e.g. via a VAT surcharge). This new office will also lead the fight against tax havens and corporate tax avoidance, by imposing a common consolidated tax base for corporates with a minimum tax rate.

On business collaboration, there could be new mergers on the model of the Airbus project in other sectors of the economy. The French-German mergers can create European champions, globally competitive. The merger of the train companies of Alstom and Siemens is only the beginning. Such mergers can happen for example in telecoms, banking, energy, defence, stock market operators. State ownership in some of these sectors on both sides can facilitate the merger process. More flexibility in applying EU competition law may also be needed.

With a passage of time, it can become apparent that there are a lot of things worse than an enduring marriage. France and Germany, and indeed Europe, can have a very bright future. The prerequisite is that they deal with the challenges they face with courage instead of sinking in stagnation. Europe is not the problem, it is the solution to many of our problems.

We can make Europe great again.

* Jörg Asmussen is a managing director at Lazard. The article expresses personal views.