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Concern Mounts in Berlin as French Political Crisis Peaks

Merkel Hollande
The German chancellor, Angela Merkel, has expressed concern about France's economic troubles. Here, with President Francois Hollande in April in Brussels.
  • Why it matters

    Why it matters

    France, Europe’s second-largest economy, is mired in an economic crisis as its beleaguered President Francois Hollande fights political opponents.

  • Facts

    Facts

    • France expects its economy to grow only 0.5 percent this year from 2013.
    • France is Europe’s second-largest economy and Germany’s biggest trading partner.
    • President Francois Hollande’s popularity rating is only 17 percent.
  • Audio

    Audio

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The Franco-German relationship, long an anchor of stability in the European Union, appeared poised to be entering a new rockier phase amid French political gridlock styming reforms.

The move came as the French prime minister, Manuel Valls, offered to dissolve his cabinet, which had deadlocked over budget cuts needed to right the country’s flagging economy.

The French President Francois Hollande, who is personally unpopular in France, accepted Mr. Valls’ request on Monday amid rising antipathy against Germany, which has pushed France and other euro countries to adopt austerity measures.

Over the weekend, before the cabinet was dissolved, the French economics minister had openly criticized Germany at a party rally in France.

Arnaud Montebourg, an outspoken left-wing member of the Socialist Party, had frequently complained about the austerity measures demanded by Germany.

On Sunday, he blamed the “obsessions of the German right” for leading France down a “blind alley.”

On Monday an exasperated Mr. Hollande, who has long struggled to convince left-wing ministers to accept economic restraint, asked Prime Minister Valls to form a new cabinet that excluded the dissenting ministers.

Mr. Hollande came to power in 2012 on an anti-austerity ticket, promising to find a French, rather than a German, solution to the country’s economic problems. He promised to ally France with southern European countries such as Italy also opposed to the northern European focus on belt tightening.

But the French economy has continued to decline.

It stagnated in the first two quarters of this year and early this month France cut its growth forecasts for both 2014 and 2015, while also indicating it would not meet its public deficit target this year.

Unemployment remains stubbornly high at 10.4 percent, almost twice that of Germany. The trade deficit continues to point to a struggling business landscape. In the first half of 2014 it was €29.2 billion ($38.5 billion). In the face of this weakening economic climate, Mr. Hollande has all but abandoned his election promises, making him the most unpopular French president ever, with just 17 percent public support.

Supporters of the austerity approach say the reforms are not going far enough, as they are hampered by France’s huge state apparatus and massive social spending.

Supporters of austerity say the reforms are not going far enough, hampered by France’s huge state apparatus and massive social spending.

Others, such as Mr. Montebourg, say restrained spending is counter-productive and damaging the country.

Paris has sought more time to meet the European Union’s deficit targets, and part of the government there has even sought to question the stability pact altogether. There have also been calls for a more active role by the European Central Bank.

Berlin has already warned France not to go seek solutions in this direction. “We have already agreed on the entire concept of stabilizing the euro with France and other European partners,” Ralph Brinkhaus, a senior member of the CDU, told Handelsblatt.  “I assume that France will stick to its agreement, with no ifs or buts, regardless of the details of the make-up of the French government.”

 

Merkel, Hollande, Cameron Source DPA
Getting advice from all sides in Europe. The French president, Francois Hollande, with British Prime Minister David Cameron and German Chancellor Angela Merkel in Brussels. Source: DPA

 

For now, it looks like Mr. Hollande has decided to follow German advice.

“Hollande has calculated he can’t afford to cut loose from Germany I think, and that sticking with the austerity plan is the lesser of two evils,” said Anand Menon, a professor of European politics and foreign affairs at Kings College, London.

Meanwhile, Berlin is looking on with concern at the political crisis in Paris.

“France is our most important partner, but also our biggest worry,” said Norbert Barthle, a parliamentary spokesman for budgetary policy for Ms. Merkel’s Christian Democrats (CDU). He said that France has to deal with its economic problems, and those can only be solved within the country.

Germany has always presented France as an equal partner, and joint leader in the European project.

The two countries consider themselves the heart of the European project. Together, they make up around 40 percent of economic activity within the European Union. France is still Germany’s biggest trading partner, and the two countries rely on each other in subtle ways.

The Economist wrote last year that “The Franco-German relationship has worked largely by simultaneously disguising both German strength and French weakness.”

But there are now signs that this delicate balance is being upset, as Germany becomes more dominant, both politically and economically on the world stage, while France declines. These tensions are already affecting corporate activity.

Earlier this year, Germany’s Siemens also made a bid for Alstom, but lost out to U.S. engineering group General Electric, which won the support of the French government during high profile bidding war. The French government said it would buy a 20 percent stake in Alstom to make sure the French interests were still protected during a transatlantic merger.

Siemens and the German government accused the French government of blocking the creation of a European champion.

Peter Ramsauer, a former transport minister and close ally of Chancellor Angela Merkel, said he did not believe the French government could afford to buy the promised stake in Alstom, given its struggles to meet E.U. deficit targets.

In July, German arms maker Krauss-Maffei Wegmann said it would merge with French rival Nexter Systems. The deal was effectively an admission by the state-owned Nexter that it cannot continue without closer cooperation with its German rivals, even if that results in French job losses.

Sebastian Dullien, a senior policy fellow at European Council on Foreign Relations in Berlin and professor of International Economics at the Berlin University of Applied Sciences, said Mr. Hollande has no choice but to follow Germany. France had already signed the Fiscal Compact, which commits Paris to meeting strict budget rules.

“He didn’t have any real room for maneuver, then he lost support at home because of the unemployment rate and this is when he tried to change course. However, there are a lot of people in the Parti Socialiste who weren’t happy with this. So it’s basically a gamble,” he said.

Mr. Dullien conceded frustration in Berlin at the anti-German rhetoric coming from some sections of the French political class.

“But on the other hand it is surprising how little they seem to notice how unpopular the German stance is outside of Germany. In Germany the attitude is that Merkel did the right thing and the euro zone is safe and it’s thanks to austerity first policies in Germany.”

“I have the feeling that some of the officials in Berlin don’t notice the discontent you see in the rest of Europe.”

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