Franco-German discussions need to build 'a concrete path' for Europe, says José Manuel Barroso
Chancellor Angela Merkel goes to Paris on Wednesday to try to strike a Franco-German deal with President François Hollande amid deep-seated differences at what has been described as Europe's defining moment.
With the two key EU countries split for the first time in 30 months of single currency and sovereign debt crisis, José Manuel Barroso, head of the European Commission laid bare the high stakes in play at an EU summit in Brussels on Thursday as well as the high frictions between Germany and France.
Merkel's first visit to the Élysée Palace under its new occupant has been hastily arranged and comes on the eve of what is being billed as a crucial Brussels summit which, apart from the immediate financial dilemmas, is to wrestle with a radical blueprint aimed at turning the 17 countries of the eurozone into a fully-fledged political federation within a decade.
"We must articulate the vision of where Europe must go, and a concrete path for how to get there," warned Barroso. But he was unsure "whether the urgency of this is fully understood in all the capitals of the EU".
Since his election last month, France's socialist leader has quickly emerged as the most formidable challenger to German formulas for Europe's salvation after two years of Berlin largely dictating the EU response to the crisis.
Merkel is feeling bruised, having just withstood two unusual attempts by fellow leaders to ambush her and get Berlin to hand over its credit cards to write off what they see as other countries' profligacy.
In Mexico last week at the G20 and then in Rome at two bad-tempered summits in recent days, the Americans and the British – in cahoots with the leaders of France, Spain and Italy – sought to press Merkel into bankrolling fiscal stimulus and bank recapitalisation policies that would cut the vulnerable eurozone countries' cost of borrowing.
"It was all wishful thinking or a political game," said a senior EU official of the ambush attempts. "There are substantial economic and political interests at play. Governments are spinning in their respective interests."
The pressure on Merkel may have backfired and reinforced German resistance to the ideas. The view in Berlin is that Hollande will have to back down amid the relative weakness of the French economy.
The blueprint unveiled on Tuesday calls for a eurozone political federation to be built over a decade entailing four stages. The details are thin and are to be fleshed out by the end of the year by the heads of four of the main European institutions, but the proposals – a response to the Greek drama that erupted 30 months ago and which has engulfed the EU into its most perilous crisis ever – mark the most ambitious European plan since agreement on the single currency was reached at Maastricht 20 years ago.
Thursday marks the start of what will be a long, exhausting, and bruising battle essentially pitting German-led integrationist pressure against French-led protection of sovereign authority and reluctance to cede immense powers over budgets and tax-and-spend policies to Brussels and a new eurozone finance ministry, proposals that also raise fundamental questions about democratic legitimacy in the EU.
To be realised, the "political union" would require a major legal overhaul, reopening EU treaties, endless quarrels, probably a new German constitution and perhaps a referendum in Britain and its departure from the EU.
"These decisions on deeper economic, financial and fiscal integration imply major changes to the way our citizens are governed and to the way their taxes are spent," said Barroso. "This crisis is the biggest threat to all that we have achieved through European construction over the last 60 years… A big leap forward is now needed."
The proposals, likely to expose fundamental splits over Europe's future, will do little to resolve the immediate debt and currency crisis. The hope is that the medium-term master plan will placate the financial markets by demonstrating political resolve to defend the currency at all costs. The risk is that the leaders will appear so divided that the markets might step up their probing of the weaker bits of the eurozone, notably Spain and Italy.
Without a Franco-German accord, the prospects of a damaging summit in Brussels are high. Last week Hollande issued policy proposals for the summit, a growth and jobs pact whose details are anathema to Berlin – the issue of short-term shared eurozone debt leading to full pooled debt, common eurozone guarantees for bank deposits, protectionist measures favouring European manufacturers and bidders for public contracts over outsiders as well as direct eurozone recapitalisation of dodgy banks without increasing national debt levels.
The Germans feel under pressure, but Merkel will court big trouble at home if she yields. A pro-European commentator in Der Spiegel this week suggested she should sacrifice her political career to save Europe and the currency.
There is little chance of that happening. But the German elite is deeply worried about Hollande's France, because of the impact it could have on the German economy's prospects battling the emerging might of China, India or Brazil.
Berlin's angst is that Europe can only be saved and a successful Europe re-established if the two core countries are in harness, that it cannot bear the burden alone, and that if the Franco-German dynamic dissipates, the German economy will be among the biggest victims of failure.
Berlin points to the widening gap in employment costs between Germany and France; a youth unemployment rate in France triple that of Germany; Hollande's first move in reducing the retirement age and France's overall loss of competitiveness over the past decade. It fears being dragged down as a result. The cautious hope is that Hollande will turn out or be forced to be France's Gerhard Schröder, the ex-German chancellor and, like Hollande, a social democrat who executed the economic, welfare, and structural reforms a decade ago that put Germany in its current strong shape.
Hollande heads a socialist party, however, that is a lot less "modernised" than Schröder's SPD or the Labour Party under Blair and which is eternally split over Europe. Hollande's foreign minister, Laurent Fabius, spearheaded the No campaign in the French referendum that sunk the European constitution in 2005.
And the crisis is throwing into sharp relief the basic divisions, particularly on the grand plan being fought over . A crisis that started financially on the EU's periphery, in Greece, Ireland, and Portugal, has now shifted politically to the union's heart, the Berlin-Paris axis.
France may baulk at the blueprint being tabled, being deeply reluctant to surrender so much sovereign power to new eurozone authorities, while Germany will only accept the liability for others being thrust on it if the powers are federalised.
A senior EU diplomat intimately involved in the Franco-German dynamic for 20 years says, however, that Merkel and Hollande are condemned to forging a modus operandi and that the stakes are too big.
"Helmut Kohl and François Mitterrand were dreadful at the start. They hated each other. Gerhard Schröder and Jacques Chirac was the lowest I ever saw. It's always like this with France and Germany," he said.
"They always represent different positions and then they find a compromise that everyone else agrees with except the UK."
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