Economics and politics - comment and analysis
5. July 2024 I Heiner Flassbeck I General

France and Germany – When Interests trump friendship

Is it pure coincidence or intentional: the EU Commission is announcing a so-called deficit procedure against France and other countries at precisely the time when France is being sent head over heels into a national election by its president, because his political camp has lost massively in the European elections and the nationalists have won massively.

The president has lost because he cannot find answers to the pressing political and economic issues. However, this is mainly due to the fact that European politics is tying his hands. What will French politicians and French citizens say when the EU Commission realises that the hands of the French need to be tied even more tightly?

Some people in Germany may find it unfair to exaggerate things in this way. After all, Macron is unpopular for many reasons and the right has been benefiting from the weakness of the traditional parties for so long. However, the widespread dissatisfaction in France has reasons that go back a long way and always appear on the political surface when other Europeans believe they have to interfere in French affairs.

The German public occasionally remembers the beginning of the century, when both Germany and France violated the European debt rules and were of course not sanctioned. In Germany, however, the fact that the economic development of both countries then diverged widely, which had serious consequences for government debt, has been completely ignored. While Germany celebrated black zeros after 2010 and reduced its public debt in relation to GDP, France’s public debt was almost always on the rise.

It is easy to understand why this is the case, but it is systematically suppressed in Germany. Germany has been running a huge current account surplus for 20 years and France is struggling with deficits in foreign trade. German economic policy relies on foreign countries regularly buying German goods on credit to the tune of 250 billion. If this succeeds, the state can easily limit its debt.

However, the surpluses, it booms from the German media, are the result of Germany’s high level of competitiveness and therefore our efficiency. If the French can’t keep up, it’s not our fault. Firstly, this is wrong on the merits and secondly, the surpluses in the EMU would be illegal even if they were justified on the merits.

Germany’s high competitiveness is still the result of Schröder’s reforms, which meant that for several years Germany’s wage increases remained far below what would have been required to meet the ECB’s inflation target. France, on the other hand, has kept exactly to this target. Consequently, it is not efficiency but wage suppression that explains Germany’s foreign trade successes. And these surpluses are illegal because, according to the rules that Germany helped to adopt, persistently high current account surpluses would have to be penalised by the Commission in exactly the same way as persistently exceeding the agreed fiscal limits. However, we have heard nothing about such a procedure in the last twenty years.

All of this has been suppressed in Germany, but is very much present in France. The weak economic development of the past 15 years and Germany’s political dominance in Brussels have repeatedly provided the right with ammunition for its anti-European campaigns. The left, especially Mélenchon’s “France Unbowed”, also regularly clenches its fist in its pocket when it thinks of the “great friendship” with its neighbour on the other side of the Rhine.

Friendship is not a political category. If people in Germany do not soon take note of the way in which German interests regularly collide with French interests, they will wake up one morning and realise that the Europe they so urgently need no longer exists.