The economic crisis and the Franco-German alliance

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France and Germany are interested in preserving their alliance, because the survival of the European Union depends on it. But France clearly is beginning to feel the effects of the political and economic reconfiguration of Europe that began two decades ago, writes Stratfor.

Stratfor is a Texas-based global intelligence company.

"Two announcements made Wednesday (13 February) prompted questions about France's economic future and its relationship with Germany. Foreign Minister Laurent Fabius said France would probably miss this year's public deficit goal.

Finance Minister Pierre Moscovici said it would be “very difficult” for France to meet its targeted GDP growth this year. These statements came two days after President François Hollande proposed a weaker euro to boost European exports, an idea that Germany immediately rejected.

Underlying these announcements and proposals is a growing unease in Paris with the country's own economic situation and, to some extent, with the German leadership of the European Union.

The alliance between France and Germany is the heart of the European Union. In 1951, the leaders of France and West Germany - as well as those of Italy, the Netherlands, Belgium and Luxembourg - created the European Coal and Steel Community, which in 1957 became the European Economic Community.

France's objective was clear: Build a political and economic union with Germany that would reduce the chances of another war in Europe. These were the early days of the Cold War, and the United States was also interested in the incorporation of Bonn into the West.

During the next four decades, France comfortably shared leadership in Europe with West Germany. But in the early 1990s, the end of the Cold War and the reunification of Germany changed the political map of Europe and with it Germany’s role on the Continent.

The German reunification brought unease to France. The first process of German unification in the late 19th century led to nearly a century of wars in Europe. Moreover, the new Federal Republic of Germany was an economic powerhouse with 80 million inhabitants, potentially displacing France as the political leader of the Continent.

Two factors contributed to the appeasement of France. First, Germany had to bear the financial burden of the incorporation of former East Germany. Second, the Maastricht Treaty and the creation of the euro assured Paris that the German economy would remain tied to the French economy.

After nearly two decades of prosperity, the European crisis is threatening the balance of power in Europe's core. Germany has consolidated itself as the leading economic power in the European Union and has assumed the political leadership of the crisis.

At the same time, the French economy has progressively lost competitiveness, dealt with a pervasive trade deficit and experienced lower growth rates than those of its eastern neighbour. Under the government of Nicolas Sarkozy, Paris prioritised the preservation of the alliance with Berlin. With the crisis deepening, Hollande finds that this strategy is becoming increasingly costly.

France's current strategy is to modify the relationship with Germany without breaking it. During the campaign, Hollande promised growth in response to the austerity designed by Berlin and Brussels. But once in power, he found that France should also reduce spending and raise taxes.

In recent weeks, Hollande began to criticise the value of the euro, arguing that the common currency is unnecessarily strong and that a weaker euro could benefit the Continent's exports.

Germany rejects this idea, believing instead that the euro should not be subjected to political manipulations. The German rejection of the French idea stems partly from fear of the inflationary consequences of devaluing the euro.

Paris and Berlin had a similar debate two decades ago when they laid the foundation of the European Central Bank. The bank was created in the image and likeness of the German Bundesbank, with a clear mandate to prioritise the fight against inflation.

Unlike other central banks, price stability is the primary objective of the European Central Bank.

Hollande’s new strategy also brings France closer to the interests of the eurozone periphery. Some of France's proposals, such as granting greater financial assistance to the periphery and the potential creation of eurobonds are in line with the interests of countries like Spain, Portugal, Italy and Greece.

But the French interest in preserving the alliance with Germany also forces Paris to seek a balance between the request for more financial assistance and the demand that the periphery adopt responsible fiscal policies.

France will find it increasingly difficult to maintain this balance, because its own economic slowdown will probably make it miss the European deficit targets.

France and Germany are interested in preserving their alliance, because the survival of the European Union depends on it. But France clearly is beginning to feel the effects of the political and economic reconfiguration of Europe that began two decades ago.

As a result, the main challenge for Paris and Berlin is not only to preserve their alliance but also to make sure that it remains mutually beneficial."

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