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Are Paris and Berlin really divided over Greece?

Euro & Finance

Are Paris and Berlin really divided over Greece?

Michel Sapin supported the Greek deal on 13 July.

[Latvijas Banka/Flickr]

In an interview with Handelsblatt, Michel Sapin said Wolfgang Schäuble was “wrong” about Grexit, but the French-German relationship goes from strength to strength. La Tribune reports.

In an interview published on 3 August by the German business daily Handelsblatt, the French Minister of Finance, Michel Sapin, highlighted his divergence of opinion with Wolfgang Schäuble, his German counterpart.

On Schäuble’s suggestion that Greece should temporarily leave the eurozone, the French minister said “We very clearly disagreed on this point.” More scathingly, he then said that “Wolfgang Schäuble was wrong”.

>> Read: After five-week shut down, Greek shares plummet

Agreement impossible without Grexit threat

This may seem like a hard line from the French minister, but in reality, it does not reveal a serious rift between Paris and Berlin.

For one thing, France unequivocally supported the “agreement” of 13 July, a deal designed first and foremost to make the Greek government pay for its drawn out resistance, rather than to offer Greece a way out of its depression. Secondly, the agreement was only possible because Wolfgang Schäuble had raised the possibility of a Grexit during the Eurogroup meeting on the Saturday.

Alexis Tsipras, who, the previous Monday, had refused Yanis Varoufakis’ plan to establish a parallel currency, feared the consequences of expulsion. He tried to avoid it at all costs, even going so far as to sign what he himself judged to be a bad deal.

So it was Wolfgang Schäuble’s bluff that allowed Greece to stay in the eurozone. Laying aside his profound differences of opinion on the nature of the eurozone, Michel Sapin welcomed the results of this tactical manoeuvre, whilst criticising the manoeuvre itself.

Angela Merkel’s game

Today, the rift between Paris and Berlin is all but non-existent. Similarly, the divide between Angela Merkel and Wolfgang Schäuble is a fiction artfully maintained by the German press.

The Chancellor refuses to call the irreversibility of the euro into question. The single currency is essential for the German economy, which she would not risk undermining. Any mention of an alternative currency would not only do this, but also cause significant collateral damage to the German budget and banking system.

But throughout the Greek crisis, she deliberately gave free reign to Wolfgang Schäuble, for one simple reason: to find out who, between Greece and its creditors, was more afraid of Grexit.

Threatening to leave the eurozone was Athens’ only weapon, which broadly justified the preparations made by Yanis Varoufakis that caused a scandal last week. In allowing Wolfgang Schäuble to ferment the possibility of a Grexit over a period of several months, Angela Merkel took away Greece’s only bargaining chip and showed them that it was in fact exactly what the creditors wanted. Thus, she neutralised their only weapon by making them believe that Greece would come off worse if they left the eurozone.

The Greek government fell into this trap: it accepted the creditors’ claims that a Grexit would be harmless for the eurozone and catastrophic for Greece. Alexis Tsipras put an end to his finance minister’s plans and had to capitulate.

But in the end, it was Angela Merkel that held the eurozone together, albeit by threatening to pull it apart. In other words, Wolfgang Schäuble is a tool in the Chancellor’s armoury; a tool that can still be used today to bring the Greeks to heel, by making them believe that the German finance minister is still determined to kick them out…

>> Read: Greece’s Tsipras seeks control over party with emergency congress

Schäuble’s threats

France shares Angela Merkel’s position. The French Government wanted to avoid a Grexit and the extra pressure this would have put on the French economy, and to stop the “Syriza experiment”, which threatened to cast doubt on the wisdom of economic choices made by Manuel Valls’ government. Paris had as much to gain from Wolfgang Schäuble’s threats as the German Chancellor.

While the theoretical divide between Paris and Berlin persists, the facts point to a complete alignment between the two countries on the handling of the Greek crisis.

Michel Sapin was only too happy to let Wolfgang Schäuble lead the charge, allowing him to speak of Grexit and to be perceived as the “bad guy” in Athens. The French finance minister was surprisingly quiet at the Eurogroup, even when Yanis Varoufakis was symbolically expelled from the session on 27 June.

Paris never tried to change the strategy of Berlin during the negotiations. This would only have been possible if France had started a new political discussion, away from the Eurogroup. But at each political meeting, France supported the German position: to send the dossier back to the Eurogroup.

Why France follows Germany

France relies on its proximity to Germany because it needs Berlin to accept its mediocre performance in budgetary consolidation. The excessive deficit is like the sword of Damocles, constantly hanging over Paris. Of course it is Brussels that makes the decisions in this domain, but the Commission would not dare to stand in the way of Berlin, which calls the shots in the European Council.

The Greek crisis proved, beyond doubt, that Berlin is the decision making centre of the European Union. All the countries that had called for Greece’s expulsion from the eurozone on 11 July, like the Baltic states, Slovakia and Finland, were quick to accept the deal once it had Merkel’s seal of approval. France believes its strategic alignment with Germany on the major European questions will bring a certain “protection”. This strategy, in operation since the premiership of Nicolas Sarkozy in 2011, continues to guarantee Germany the unequivocal support of Paris. Michel Sapin was not wrong when he told the Handelsblatt that from now on, “France will never again be seen as a poor performer”.

Left against right

Michel Sapin’s opposition to the German finance minister serves a number of purposes. It is meant primarily to show the French people that their government is a counterweight to Germany. By opposing Wolfgang Schäuble, Michel Sapin can be seen coming to the defence of the European Union against the egotism of his German counterpart. This, he hopes, will give the French government a fresh left wing shine for the elections, having defended European solidarity against the “German right” that supposedly wanted to dismantle the eurozone.

A good strategy for Paris?

The 13 July agreement demonstrated that the harder a country tries to step out of line with the dominant ideas of eurozone governance, the harder the other members try to stop them. Yet France undoubtedly needs to make some painful changes to modernise its economy. Faced with competition from countries like Spain and Italy, which operate in the same market sectors but have lower production costs, France will have to find significant savings.

France’s strategic alliance with Germany on European issues may not be enough to convince Berlin to make these changes in a moderate way. The conservative German press continuously trumpets the “need for reform” in France, and the cost of German protection may eventually prove unsustainable for Paris.

If the eurozone becomes more integrated, France will have even less room for manoeuvre. As Yanis Varoufakis said in his latest interview with El Pais, “the final destination of the Troika is Paris”.

This article appeared first on EurActiv France.