Mending Fences

Paris and Berlin Play Nice

Merkel Hollande Source AFP_changed
German Chancellor Angela Merkel and French President François Hollande can expect more cooperation between their countries.
  • Why it matters

    Why it matters

    More cooperation between these two economic powerhouses could help heal Europe’s financial woes.

  • Facts

    Facts

    • Relations between France and Germany have been tense since President Francois Hollande came to power in Paris.
    • Mr. Hollande campaigned on a platform of opposing German-led austerity in Europe.
    • The two countries’ economic ministers are now open to talks about joint reforms and investment projects.
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    Audio

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The governments of Germany and France have been talking about, rather than to, each other for nearly two years now. But cooperation on foreign policy when it comes to Ukraine or Islamic State terror in Iraq and Syria has brought Paris and Berlin together again.

Slowly but surely, the gap between the two is getting smaller. France’s readiness to pursue reform is growing, and the German government is realizing that just overhauling the budget doesn’t equate to a perfect economic policy if there is no investment.

Both sides are acting out of character. French Prime Minister Manuel Valls, in power since March, is saying unequivocally that what his country needs is a supply-side policy. He is departing from French President François Hollande’s never-ending demands for an “end to austerity” in Europe.

Far-right populists have a realistic chance, for the first time since the end of World War II, at the French presidential election in 2017.

At the same time, the German government is getting off its high horse, from which it frequently looked down on France. It is dawning on those responsible that Germany under Chancellor Angela Merkel is rusty – and not just with regard to infrastructure. The illusion is fading that Germany is particularly strong on its own. This is a key reason why the powers-that-be no longer pass comment on what is happening in Paris, but are more interested in helping it find solutions.

All indicators point to increased cooperation. Of course, Berlin continues to urge Paris to consolidate its budget. But there’s more to it than just that. Germany’s Sigmar Gabriel, the Social Democratic Party leader and minister for economics and energy, and Emmanuel Macron, France’s economics minister, have told their closest advisors to study proposals for joint reforms and investment projects.

The economics and finance ministers are at pains to come up with sensible ideas in response to the “investment offensive” of Jean-Claude Juncker, the incoming president of the European Commission.

 

Diverging developments: France's and Germany's debt as a percentage of gross domestic product. Source: IMF
Diverging developments: France’s and Germany’s debt as a percentage of gross domestic product. Source: IMF

 

Yet behind the scenes, German employers are looking for the best way to support initiatives for more “social partnership” among government, employers and workers in France. The whole spirit is changing between Paris and Berlin. The new motto could be: Stop whining and get on with it.

This change of attitude also has to do with the fact that decision-makers are clear about what’s at stake in France and Europe. Far-right populists have a realistic chance, for the first time since the end of World War II, at the French presidential election in 2017. This danger has not been noticed inside Germany’s government coalition parties, but Ms. Merkel, Mr. Gabriel and Frank-Walker Steinmeier, Germany’s foreign minister, are well aware of it. And that is why they want to fully support Mr. Valls.

A joint reform workshop is better than any number of banal warnings about populists. France will be able to give more flexibility to its labor market only when the French find a better way to deal with unemployment. Germany has experience in such matters. And France can teach Germany how to complete major projects, such as Berlin’s new airport, on time.

 

Thomas Hanke is Handelsblatt’s Paris correspondent. To contact the author: hanke@handelsblatt.com

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