The European motor has been sputtering of late. A big reason is lingering disagreements between France and Germany, which, despite the European Union swelling to 28 members, are still seen as key to igniting any major policy changes on the continent.
Their spat was largely to blame for European leaders last week failing to agree on appointing new ministers to the European Commission, the European Union’s executive arm. The two countries disagreed sharply over who should claim the key post of Economic and Monetary Affairs Commissioner. A decision has been postponed until August.
It is only the latest dispute between the two countries over how to approach the euro zone’s long-running debt crisis. With the continent’s economy sputtering and unemployment still near record highs, France has emphasized the need for policies that spur growth. Germany has long prioritized reining in government spending, fearing that financial markets could plunge the euro zone back into crisis if they ever doubted the euro zone’s commitment to solid finances.
Giving a joint interview for the first time, France and Germany’s finance ministers were mostly looking to step back from the brink, emphasizing their common views on the need for governments to keep their spending in check but also on the need for policies to revive growth and investment.
Both ministers rejected the notion that the European Union’s Stability Pact, a set of rules to check government spending that were strengthened in the aftermath of the European debt crisis, should be relaxed.
French Finance Minister Michel Sapin, who since April has been tasked with reviving France’s economy and bringing its deficits under control, denied that his government is looking to relax the rules.
“The rules exist. Nobody can question these. With Europe emerging from a very difficult crisis, the task is to develop the best policies so that we can get back to solid and sustainable growth,” he said. “Solid growth requires a serious fiscal policy. Sustainable growth is not possible with long-running high deficits.”
German Finance Minister Wolfgang Schäuble echoed this sentiment: “It is just as Michel said: solid growth will only come through solid finances. That is what we should be concentrating on.”
Yet Mr. Schäuble also acknowledged the need to spur investment in Europe and in Germany. He emphasized that this should come from private rather than public sources. “We can finance infrastructure much more strongly through private sources,” he said. “That is what we are working on in Europe. There are so many European funds that have not been called on in the last few years.”
Their differing priorities reflect the diverging economic path of the two countries. At 5.1 percent, Germany’s unemployment rate is half that of France’s 10.1 percent. Germany’s trade surplus is estimated to climb to 7.3 percent of economic output this year, compared to a deficit in France of 1.7 percent.
Germany is worried about bubbles emerging in its financial system and housing market, but also about a lack of domestic investment. France is still looking to boost the housing market and spur lending to the economy.
The budget situation for both countries has diverged along the same lines as the economy. Germany plans to get by next year without any new borrowing, marking a first since reunification in 1990. France by contrast is battling to bring its own budget deficit below the EU-set threshold of 3 percent by 2015. While there has been speculation that it will fail to meet this goal, Mr. Sapin denied that France is asking the European Commission for more time.
“It is not about asking for more time. I want to follow the European rules and together with our partners get the timing right, so we can lower our spending and deficits, while supporting growth at the same time,” he said.
Mr. Sapin emphasized France’s own efforts to bring spending under control and restore credibility to markets. The country plans to bring its budget deficit back into line with the 3-percent limit set by the European Union by 2015, cutting €21 billion in government spending by then and €50 billion in spending by 2017. At the same time, it has pledged a “social pact” with French businesses that would see taxes reduced by €41 billion over the next four years.
“It is not about asking for more time. I want to follow the European rules and together with our partners get the timing right, so we can lower our spending and deficits, while supporting growth at the same time”
“The day that I can present Wolfgang [Schäuble] with a balanced budget, I will bring four crates of champagne with me. We are not there yet, but we are making absolutely drastic cuts to the state budget, the communes and social insurance,” Mr. Sapin said.
Yet on the dispute of the day – which country gets to appoint the commissioner in charge of economic and currency policy – neither side has shown a willingness to move. Germany fears it would send the wrong signal to give the post to a country that has called for relaxing the European Union’s budget-constraining rules.
Yet this is a post that France desperately wants. Mr. Sapin said it was “legitimate that France should take charge of such an important post, a post with economic significance reflects France’s economic strength and capabilities.”
Mr. Schäuble sought to put his opposition diplomatically, emphasizing that such decisions were “sensitive and not about individual people.” Without naming France, he rejected the notion that somebody from the Socialist party should necessarily get the role: “It can be a Socialist but it can also be a member of another party,” he said.
The dispute over ministerial posts boils down to a fundamental difference in approach to the euro as a currency. France has repeatedly prodded the European Central Bank to use its powers to weaken the euro and thereby help revive flagging exports. It was “not forbidden for politicians to speak about the exchange rate of the euro,” Mr. Sapin said.
Mr. Schäuble thinks this should be left to investors. “I don’t think much of political discussions about the exchange rate. This is decided by markets,” he said. Instead, he prodded the European Central Bank to keep in mind the risk of bubbles developing in the economy.
“We can’t leave the job of avoiding bubbles simply to national supervisors,” Mr. Schäuble said.