The Franco-German Tandem Confronts the Euro Crisis

February 2011 THE FRANCO- GERMAN TANDEM CONFRONTS THE EURO CRISIS

www.fondapol.org

Wolfgang GLOMB www.fondapol.org

THE FRANCO-GERMAN TANDEM CONFRONTS THE EURO CRISIS

Wolfgang GLOMB The Fondation pour l’innovation politique is a free-market, progressive and European think tank.

President: Nicolas Bazire Vice-president: Charles Beigbeder Chief Executive Officer: Dominique Reynié [email protected] ABSTRACT

The history of European integration is also that of monetary integration. Franco-Germany co-operation has always played a decisive role in European monetary policy. It is in this area that disagreements persist between the two countries, as well as a desire to arrive at a compromise without which the euro would not exist. The monetary issue only became significant in Europe with the growing integration into the Common Market and the collapse of the International Monetary System. A closer co-operation within the European Currency Snake failed because of the lack of synchronised economic policies. Later, the European Monetary System (EMS) was launched in a turbulent environment but stabilised after the “move to a policy of austerity” decided by François Mitterrand. This trend led to the first debates in France on how to create a common European currency, echoed by similar ideas on the German side. However, many Franco-German divergences persisted and the Treaty of Maastricht corresponded more to the German concept of stability. Such ideas were not fully implemented during the first ten years of the euro’s existence. In the spring of 2010, the economic differences between the Member States caused turbulence in the financial markets and to the threat of default on the part of Greece. Germany had to abandon all of the principles it had defended up to that point during the euro rescue operation. Similarly, adopting the reform of the Stability and Growth Pact called for a Franco-German entente. The French concept of political primacy prevailed over the German preference for strict budgetary rules. The question now lies in the euro’s long-term stability. If the latter is not secure, the choice of a union of financial transfers will become inevitable, with all of the consequences that it would imply in the realm of domestic policy (notably right-wing radicalisation in Germany). The Franco-German tandem therefore must maintain close co-operation in order to prevent such a situation, which would be critical for all of Europe.

THE FRANCO-GERMAN TANDEM CONFRONTS THE EURO CRISIS

Wolfgang GLOMB Economist, member of the Franco-German Council of Economic Analysis and Chairman of the Association of German Economists’ “European Integration” working group.

Introduction

“Europe will be created by means of a single currency or not at all” (Jacques Rueff, French senior official and economist, 1949).

“If the euro fails, Europe will fail, and with it the idea of European unity” (German Chancellor Angela Merkel, May 2010).

Sixty years separate these two statements, yet both attest to the pre- dominant role of currency in European construction and therefore in Franco-German relations, should these two countries should be called upon to spearhead efforts to achieve a united Europe. At the same time, currency has been a source of profound and un- ending discord between the French and Germans. On 9 May 1950, French Minister of Foreign Affairs Robert Schuman took the initiative of creating the European Coal and Steel Community (ECSC), which ultimately became the European Union. Exactly sixty years later to the day, the European Council, under the French Presidency, in one “blitz” operation, violated all of the principles governing euro stability which most mattered to the Germans. Franco-German co-operation in the monetary sphere has been constantly undermined by numerous disputes. One outstanding example is the European Monetary System crisis of September 1992, during which the Bundesbank (“Buba”) had to support the French franc in the amount

7 8 fondapol | l’innovation politique to the detriment of small- and medium-sized companies (Mittelstand) companies medium-sized and small- of detriment the to achieved were projects Such Concorde. the and TGV State the like prestigious projects and – Germany in unknown scope a of one – ment this approach is a very active industrial policy on the part of the govern- drew up sectoral plans and defined strategic industries. What remains of the top down,” hence the emphasis given to planning. Planners carefully economy,was: the formula from organise magic “modernise to the and contrary,the to State’sthe was it that thought then was it responsibility France, In regulation. market financial of framework the within today as freedom possible and no more rules than necessary. much This question is still relevant as granted when deployed fully be only can which forces market in trust complete a on based was policy Adenauer.His name Ludwig Erhard, Prime Minister of the Economy under Chancellor operate.Germany,In the with associated inseparably is order economic should economy the how to as convictions divergent their to imputed its Frenchneighbours. German population’s attachment to its currency is rarely understood by democratic and free States by way of an economic miracle. However, the of community the within position new a gaining and WorldII Warof ruins the from emerging Germany resurrected a of symbol the became by Germany in the first half of the 20 experienced reform) monetary and (hyperinflation problems monetary the by explained be can destabilisation monetary any tion’sto aversion popula- Bundesbank.”German the The in believe all they but God, in believe Germans all that “not said rightly order.Delors nomic Jacques not a myth, but a fundamental and perennial element of Germany’s eco- Bundesbank.the of responsibility the solely latter’sThe is independence is stability,which monetary is area this in prerogative only The pawn. political a as used be not must it policy-maker’sdisposal: the at placed in Germany, currency is not to be used for political ends and is not to be State.Conversely,the by used be to power political of instrument an as the in economy. currency of According role to the the Germans at of any conceptions rate, different the French their view is currency countries which wasdetrimentalforFranceandGermany’s otherpartners. rates interest in rise a in resulted allegedly market,which capital the to resorting by unity German financed having of Germany accused then Paris euros. billion 50 or (DM), Marks Deutsche billion 100 some of In the final analysis, dissensions between the two countries canbe twocountries the between dissensions analysis, final the In h mi cue f hs de msnesadns ewe te two the between misunderstandings deep these of cause main The th century. The new stable DM then wage-price loop. Lastly, in the 1990s, deregulation directives the and debt public excessive laxity, budgetary abandoning for called then parity franc-mark 1980s.The the in discipline monetary and tion was converted into a free-trade economy in the 1960s, then into disinfla- borders, its within sheltered 1950s, the until remained, industry whose Community (ECSC) in 1952, and of the Treaty of Rome in 1957. France, the Steel of and Treatysigning Coal the European from the establishing when they met in the spring of 2010. Such constancy probably originates by, among other things, the Agenda 2020 adopted by both governments jeopardy.in Tocontrary,ever,the than buoyant more is to it attested as been never has co-operation Paradoxically,Europe.Franco-German of is still a “French-style” Europe, whereas in France it is a “Germanisation” status quo often consists of a latent mutual defiance. In Germany, the fear ibility, werethedrivingforcebehindGermanexports. which, in the post-financial crisis, and because of their considerable flex- 1. provide Europewithitsrightfulplaceinafast-changing world. to duo Franco-German the for paper opportunities this and conclusion, challenges In explores crisis. debt the from exit sustainable a for recommendations presents chapter last and sixth the while Japan, and States United the of decline the on perspective economic a policy. offers fifth The coordinating in instrument institutional an as government public debt crisis in Europe and the fourth concerns the role of economic the global financial and economic crisis. The third chapter deals with the address they how in differed have Germany and France which in ways to Franco-German co-operation, whereas the second chapter stresses the monetary integration in Europe, which has constantly assigned a key role German modelinordertoimprovepublicfinancesFrance. the follow to mandatory was it that asserted Baroin François Minister at the presentation of the 2011 Finance Bill, during which French Budget Germany regularly acts as the benchmark country,pressure. market as to it response did again in recently prevailed which concepts German the to take steps to privatise public companies. For the most part, it was thus Cercle des économistes, “L’Allemagne, unmodèle pour la France ?”Cahier l’Allemagne, 2008. Stoffaës, Christian In view of the profound divergences between the two neighbours, the In its first chapter, this study presents an overview of the history of history the of overview an presents study chapter, this first its In Le perspective , une franco-allemandes: économiques divergences etConvergences 1 led France

9 The Franco-German Tandem Confronts the Euro Crisis 10 fondapol | l’innovation politique tem made it possible to maintain a certain level of exchange rate stability Ireland and Denmark were joined the currency snake. Although this sys- Community (EEC) membership process, the currencies of Great Britain, foreign exchangemarket. The Bretton Woods systemwasterminated. decision by U.S. authorities to set aside their obligation to intervene in the into an “out of the tunnel” snake, because of a dollar devaluation and the tunnel”the in snake currency born,was later year a transformed was but European The to 2.25%. currencies their between margins fluctuation so-called the through “Basel Agreement,” the limit to decided Six the that prerequisite for the growth of intra-European trade. It was in April 1972, a was this stability,yet rate exchange behind idea the contradicts which reach 9%, could band thefluctuation within a currency of fluctuation to thus and 4.5% between currencies 2.25% under the Bretton to Woods 0.75% system. from The maximum broadened were dollar the to tion rela- in margins fluctuation currency the gold; into dollar’sconvertibility the collapseofinternationalmonetarysystem. would enter into effect; the subsequent stages were postponed because of 1970–1972) (from Union Monetary and Economic European the lishing estab- plan this of stage first the only 1970,but October in Ministers of calendar.stage-by-stage Council the The by Werneradopted was Report of Finance – with the task of making specific proposals and developing a Pierre trusted WernerLuxembourg’s then Minister – and Minister Prime the Six adopted the principle of an economic and monetary union and en- Hague Summit in December 1969, the Heads of State and Government of the at response, In (CAP). Policy Agricultural Common the particularly the proper functioning of the Common Market and Community policies, impacted adversely – 1969 in franc French the of devaluation 1962, in (DM) Mark Deutsche the of re-evaluation – hurdles monetary decade’s stages which would need to be followed to establish a single currency. That of the European Commission had, by the early 1960s, already outlined the little-known Marjolin and Barre reports, named after these two members Germany.The and France between disagreements and agreements the From the very start, European monetary integration has strongly reflected The currency snake n a 17, ihn h faeok f h Erpa Economic European the of framework the within 1972, May In the suspend to decided Nixon Richard 1971,U.S.President In August From theWernP n to thee la uro resc ue operatio n

evnins plc ad eainlsd rvt cmais Sgs f a of Signs companies. private renationalised and policy terventionist in- an adopted 1981, in d’Estaing Giscard Valérydefeating after who, Mauroy Pierre Minister Prime his and Mitterrand François President by caused initially were franc the to regard with tensions The period. this during franc the against 30% by revalued was Mark Deutsche the and times seven realigned were rates central currencies’ the 1983, and parities within the EMS had to be adjusted several times. Between 1979 rate central the and thought, been had as strong as yet not was sensus existence. its of years first very the within out snuffed con- stability The to reintegrateFranceintoEuropeanmonetaryco-operation. also currencies,but European between tensions reinforcing were which fluctuations dollar the and States United the to regard with independence policy’s monetary their increase to only not was goal common entered into effect on 13 March 1979. Giscard d’Estaing’s and Schmidt’s 1978,December in Council EMS European the Brussels the by decision a to led Copenhagen.which in negotiations meeting long Council After European 1978 April the closing dinner a at zone stability monetary a Giscard create to plan their Valéryunveiled Schmidt Helmut Chancellor and d’Estaing President Bundesbank, the nor Minister Finance the neither side, German the on which, move discreet one In system. rate exchange stable more somewhat a establish to taken was initiative new a reason, this For efforts. integration economic EEC’s the from rived de- benefits the limited rates (CAP).exchange with associated risks The Policy Agricultural Common the with notably and Market Common the of creation the with interfered weakness,dollar’s from part in ing During the 1970s, the strong fluctuations of European currencies, result- The European Monetary System (EMS) and theBeneluxcountries(DeutscheMarkBloc). only currencies remaining in the snake were those of Germany, Denmark 1979, the until up time, 1976. and that in At it of out came definitively therefore excluded. The French franc left the snake, entered it again and tension in currency markets. The new member countries’ currencies were heightened causing deficit, a show to began balances current countries’ many that so much so – different very were crisis oil the to countries member EEC of reactions The 1973. in crisis oil first the of aftermath from 1973 to 1977, it did encounter some difficulties, particularly in the oee, oe fr oeay tblt pae i te M were EMS the in placed stability monetary for hopes However, 11 The Franco-German Tandem Confronts the Euro Crisis 12 fondapol | l’innovation politique by a common currency began to gain ground in France. This concept This France. in ground gain to began currency common a by difficult for France to tolerate. That is why the idea of replacing the DM de France’s independence was becoming increasingly limited, which was The DM thus served as an anchor currency within the Germany.EMS. of The Banque that with line in closely more policy economic and etary Pierre Bérégovoyand Theo Waigel. marked by a close and trusting collaboration between were Finance Ministers years Those Paris. and Berlin between compromise a of result a 15%as to 2.25% from margins fluctuation currencies’ the widening by resolved finally was conflict The francs. French of number limited un- an buy to refused and interests national own its favoured clearly the “strong franc” policy had been in effect since 1985. The Bundesbank since France, for sacrosanct become had parity franc-mark the though refusing categorically France Germany’s offer to revalue with the DM. This was also market,the case in 1993, even exchange foreign the on interventions massive of means by months several for franc French the support to had ”Buba” the 1992, In supply. money the increasing of risk the running thereby francs, French of buybacks massive by EMS the defending and rate interest a high maintaining by inflation fight to need the between torn was Bundesbank the when 1993, and 1992 in downs,”particularly and “ups monetary Union by marked was progress ter’s Monetary and lat- The years. following Economic the during smoothly advance not the did (EMU) of creation the Nonetheless, Towards asingle currency common currencyinEurope. a of introduction the for way the policy, paving finance ultimately and economic its in change extensive an on brought and austerity economic 31 March 1983. This German compromise facilitated France’s return to 5.5% revaluation of the mark and to a 2.5% devaluation of the franc on intense days of realignment negotiations within the EMS finally led to a to agree to this broad a bilateral revaluation of the Deutsche Mark. Two Helmut Kohl’s new Chancellor Finance Minister, EMS. Gerhard Stoltenberg, the was not in a position within 10% by mark the revaluing for own,his on acting exchange Delors in Jacques Minister Finance French early 1983. The new policy was presented to German representatives by however, emerged, in policy financial and economic French of reversal oee, hs“tog rn” oiy en bign Fac’ mon- France’s bringing meant policy franc” “strong this However, reached at 3:00 a.m.: Duisenberg was elected, but agreed not to exercise was compromise a negotiations, tense country.and small lengthy After a represented who Bank, Central Dutch the of president was time that at who Duisenberg, Wim supported they Instead,demands. French the Hans President to agreed Chancellor the Bundesbank if Tietmeyer,resign collectively to threatening from as well as Kinkel, Klaus Minister Foreign from and WaigelTheo Minister Finance from opposition sive mas- Chirac’sencountered President preference,nonetheless support to been received from the German Chancellery. Chancellor Kohl, prepared had signals favourable that claiming Trichet, Jean-Claude candidate, France’s promoted strongly Chirac, President by represented France, members. Board ECB’sExecutive the and EMU the in participants the about decisions final make to had Government and State of Heads the luncheon, Council European a accompanying Meeting Extraordinary 1998. May in Bank Central an European At the of president first the of nomination the of occasion the on countries two the between veloping of theFranco-Germanco-operation. impetus the under 1988 spring early by tracks the on already was train process did ensure and accelerate the advance towards the EMU, and the unification German the same, the 1989.All October WallBerlin in the German unification. Indeed, at that time, no one had foreseen the fall of opinion that abandoning the DM was the price Germany had to pay for Maastricht wassignedin1993underaDutchpresidency. of Treatythe after 1999, in euro the introducing for plan a contained report ofthiscommittee, composedofnationalcentralbankpresidents, currency.The single a implement to plan stage-by-stage a develop to Commission) European the of President the become meantime the in had (who Delors Jacques by led committee a convene to – presidency decision taken in Hanover by the European Council – then 1988 under a German June the for basis the was Memorandum This Europe. in union political for vehicle the and force driving integration’s as policy monetary (ECB).considered Bank He Central European a of and Space Minister Foreign German Hans-Dietrich Genscher proposed the creation of a European WestMonetary Memorandum, 1988 February a In Kohl. Chancellor by and parties political major the by supported idea etary integration as a necessary complement to the internal market – an mon- promote to wished some where Germany,too, in followers had Such a close entente did not prevent considerable tension from de- from tension considerable prevent not did entente close a Such still-prevailing the contradicts clearly events of turn historic This 13 The Franco-German Tandem Confronts the Euro Crisis 14 fondapol | l’innovation politique debt securities from the eurozone’s fragile States, thus playing the role of euros.billion Moreover,112 talled public back buy to decided ECB the to- portion French the while spending, social government’s federal the to equivalent was share German governments.billion-euro try 150 The coun- eurozone the by guaranteed markets financial the on borrowings tries in case of serious difficulties. Its financing was to be secured through with 440 billion euros, to be made available to eurozone member coun- consideration ofEuropeanrules. any without principles, sacrosanct Pact’s Stability the of all ignore to hesitate not did therefore Government and State of Heads sector.The banking Europe the of collapse a to lead could risk systemic Greece’s that fears were implosion.There eurozone a avoid to formulated be to had plan rescue emergency an euros), billion 300 of debt Greek total a of out bonds Greek of worth euros’ billion 80 holding alone panies com- insurance and banks French (with system financial European the Greece’sinto of integration view market.In interbank the on problems refinancing and indexes stock falling rates, bond higher present: were bankruptcy Brothers Lehman after appeared had which signs same The markets. financial eurozone’s the of all destabilise to threatened soon crisis debt Greek deepening contrary,the the To markets. the calm to failed plan rescue Greek billion-euro 110 The debts. public Portugal’s and Spain’s of sustainability the about markets financial the began invade to doubts 2010, spring in Greece of collapse economic the After The euro rescue operation to thePact’s title, whichthusbecamethe “Stability andGrowthPact.” the which French side managed to impose was the addition of the word amendment “Growth” only The corrections. marginal with adopted therefore was latter The proposal. German the of support their upon to his colleagues that their countries’ participation in the EMU depended ECB’sthe now is and Economist,Chief terms uncertain no in explained Finance, for State of Secretary German the was time the at who Stark, Jürgen strength. of position a from negotiating Pact’sauthor,then was Germany,the countries. two the between compromise a from resulted in historyas “the longestlunch” initshistory. his mandate for eight years. This European Council meeting went down The eurozone’s finance ministers set up a three-year fund endowed fund three-year a up set ministers finance eurozone’s The Similarly, the adoption of the Stability and Growth Pact (SGP) in 1995 tors of loans to severely indebted States – namely,– States indebted severely to banks. loans of tors danger,credi- in the is but which euro the view,not his is curb In it growth. will that Germany for risk incalculable an represents operation rescue euro Germany,the in Research Economic of Institute Ifo the of President Sinn, Hans-Werner Prof. of opinion the in contrary, the To German co-operation. rescue operation’s initial stage placed a great deal of pressure on Franco- nouncing the “putschist” nature of the decisions adopted. Thus, the euro plan,”de- bailout “Greece so-called the block to Court Constitutional Federal Germany’s with appeal an lodged economists and professors clause) should yield to the urgency and demands of political solidarity.political of demands and urgency the to yield should clause) For France, it is only natural that Article 125 of years! the Treatytwenty (“no bailout”for existed had which rules Maastricht weekend, single a in changed, have to claims Affairs, European for State of Secretary French Lellouche, Pierre countries. two the between remain which ion fund. This compromise does not conceal the extreme differences of opin- “rescue”euro the in Fund Monetary International the of participation new Community creating funds, a fund expiration date set at three years without and the operation intergovernmental an obtained has latter the different: is view chancellor’s German The objectives. his of 97% did notconstituteaeurocrisis, butapublicdebtcrisis. markets financial the of disruptions 2010 May countries.The stable of policies,budgetary countries’ indebted severely the of taxpayers the but owners,bank be not i.e. consequences shareholders,the suffer will who debt.Ultimately,its will service it to countries member eurozone the to up be will it time, on borrowings its reimburse to unable prove Greece their of dispose to investors and banks the lowed “toxic”assets. Should al- That banks. commercial to granted credits for security as accepted even not had it then, until which, difficulty in States of loans on, point that from market, secondary the on purchasing by resort last of lender 3. 2. theseal set Parliaments, both by ratified later and Adenauer Konrad Élysée The and TreatyGaulle de Charles by 1963 January 22 on signed Institutions promoting Franco-German co-operation IFO Schnelldienst, 10/2010, 20 May 2010. of International Relations (Ifri) and the Konrad Adenauer Foundation on 25 May 2010. The seminar “Le couple franco-allemand et l’Europe face à la crise,” was co-sponsored by the French Institute After this urgent intervention, President Sarkozy feels that he has met 3 Five German Five 2

15 The Franco-German Tandem Confronts the Euro Crisis 16 fondapol | l’innovation politique end of the French Presidency,French the adopted of ultimately end Council European the to President reach an French agreement on a plan to control the financial the crisis. by Towards the convened Summit Eurozone the at down toned later was Paris, in 2008 October 4 on Summit G4 European the Different structures Parliaments. German and French the between co-operation further to one including its work. To date, there are ten Franco-German forums for co-operation, by compromised never was independence Bundesbank’s the and sions, deci- make to unable therefore was Council The areas. various these out the objective of “examining and coordinating as closely as possible” notably –and monetary – policy were made an integral part of the economic protocol, which set influence to intend might France that were year.a twice met which Ministers Germany’s reservations,which initial of Council Franco-German the before report a present and year a times of FinanceandtheEconomy, aswellthecentralbankgovernors. Ministers the countries.of two consisted the members between Council co-operation monetary and economic enhance to was Council this of ratified. aim subsequently The protocol,and additional an of means by Élysée the in included Treatywas Chirac Jacques Minister Prime of tive initia- the at created Council Financial and Economic Franco-German a 1988, January 22 On countries. two the between reconciliation on 4. funds. wealth sovereign European and government” “economic eurozone potential a plan, lus stimu- the of scale the plan, rescue bank European the refusal: even or manager,crisis reluctance,a German as with met initiatives his of some role his in was president French the as effective agreement.As German Franco- of areas numerous as well as misunderstandings countless by marked was Union.period European This the of Presidency French the often viewed as the trigger of the global financial crisis –event occurred under an – 2008 September 15 on bankruptcy Brothers’ Lehman The franco-allemande,” Konrad Adenauer Foundation, 2010. JacquesMistral and Henrik Uterwedde, “Politique économique financière:et enjeux et pistes d’une initiative codn t te rtcl te oni ws xetd o et four meet to expected was Council the protocol, the to According F ra n co -G erma n n 4 This German reticence, which intensified at intensified which reticence, German This reactio n s

the

fi n a n cial

crisis German banks. the than losses fewer suffered have they and higher much is banks vate pri- of percentage France,the nationalised.In 25% Commerzbank and nationalised 100% be Commerzbank.to the had and Estate Real Hypo Estate Real Hypo bank mortgage the of only consisted banks private Landesbanken which suffered the greatest losses, while severely affected the was However, it governments. and communes Länder are owners and banks savings particularly law, public by governed are institutions banking the of half Germany,nearly In ent. was undergreaterpressuretoreactthanFrance. Germany had to bear the full brunt of the decline in global demand and 2002.Consequently,since negative been has growth its to contribution balance’s trade its consumption; household by sustained is France of deficit didnotexceed3%in2009and5%2010. budgetary their i.e., budget, balanced a with crisis financial the entered Germans the part, their For 2010. and 2009 in 8% to exploded deficit the and measures anti-cyclical taking for leeway limited had French the the Commission nor the Council intervened. From the start of the crisis, contradiction of the Stability and Growth Pact’s philosophy – but neither after that of Greece) despite a favourable economic environment – in full close to 4% of its GDP the twocountries’differentsituationspriortocrisis. port the banking sector. Such divergences can be primarily explained by sup- to order in terms same the under intervened governments two the economic scope of the crisis and the measures to be adopted, even though represented 1.5%oftheEU’s GDP. 200 a 5. Todemand,plan internal stimulus its second support a up set Germany countries. two these in differed crisis financial global the to reaction the that crisis the to prior surfaced which divergences these of because is It Contrasting reactions European Commission, “Public Finances inEMU2010 Report,” European Economy 4/2010, p. 14. aty te w cutis bn sco srcue ae ey differ very are structures sector bank countries’ two the Lastly, that whereas trade, foreign its of product the is growth German France entered the financial crisis with structural budgetary deficits of macro the concerned dissent Franco-German of area main The billion-euro European stimulus plan for 2009 and 2010, which 2010, and 2009 for plan stimulus European billion-euro 5 (the second-highest deficit of a eurozone country whose Landesbanken, - 17 The Franco-German Tandem Confronts the Euro Crisis 18 fondapol | l’innovation politique European stimulus plans’ mean standard. mean plans’ stimulus 2008 European December the exceeds substantially which 2010, and 2009 data for Commission European to according GDP, the of 4.1% reaches stimuli discretionary of amount total the plan, stimulus the to added is (Deutschlandfonds) companies production to guarantees and credits dismal results. If the creation of a 100 billion-euro special fund to extend produced had plans stimulus its when 1980s and 1970s the in through tions can be attributed to the difficult experiences which Germany went Chancellery’sthinks,”reserva- Germany said). The supposedly Sarkozy cised by the French president for being too weak (“France acts, Germany criti- was plan billion-euro 32 initial an euros,after billion 50 totalling 7. 6. cerning financialregulation. con- matters in scene international the on leadership European sharing by co-operation Franco-German revive to occasion an was Summit this joint letteraddressedtoU.S. PresidentBarack Obama. a in expectations their indicated policy, and deficit budgetary a pursue to and regulation financial defer to plan U.S. the opposed jointly also They 2010. June late in Canada in meeting G20 the at together ideas their defended They transactions. financial on tax a creating and levy President Sarkozy stated that they were in favour of introducing a bank form within the framework of the G20 meetings. Chancellor Merkel and Ireland roseto200%oftheGDP, accordingto theCommission’s data. the bank sector remained below 1% of the GDP in both countries, but in point.2010,1 and to than 2009 extended less In guarantees were years Commission estimates, European to 2009,according in points 4 and 2008 in points 2 by GDP sation measures taken in France. They increased the public debt ratio to recapitali- the exceeded Germany, holdings In government specificities. Great Britain. two governments agreed was not to lower the VAT, an option chosen by the GDP. which its on of points 3% rare totalled the figures of ing One European Commission, “Public finances inEMU 2010 Report,” European Economy, 4/2010, p. 25. European Commission, “Public finances inEMU 2010 Report,” European Economy, 4/2010, p. 20. Far from the dissent which marked the onset of the financial crisis, financial the of onset the marked which dissent the from Far re- regulatory financial on views their reconciled countries two The The bank rescue plans also reflected the banking sector’s national sector’s banking the reflected also plans rescue bank The 7 whereas those figures in France during the same 6 For France, the correspond- the France, For 24 ofthe27MemberStates. against procedure deficit excessive an initiated Commission European 2008.to 2010,compared in as points The 18 by and 2009 in points 12 slightly higherdeficitsinFranceandGermany2010. 3% in Germany (after a balanced budget in 2008). Projections called for and double) than more (i.e., France in 7.5% reach and GDP of 7% to triple to expected is deficit EU total the data,Commission’s European the States.to Member According EU all nearly in 2009 in considerably worsened situation support finance public sector, the themassive financial the to of extended and measures, stabilisation fiscal cretionary the economicsituationinEurope. stabilise to average EU the than more contributed and demands, ners’ 3% in France). Thus Germany did more than merely respond and to its part- Germany in (4.1% statistics Commission GDP, European to the according of 3% about average, on totalling, 2010 and 2009 in ures to total9%, reached18%inSpain. 2% by rose EU,which the in rate unemployment 18%.average by The the preceding year: in France by 2.2%, in Germany by 5% and in Latvia European countries by 4.2%, on average, within the EU, as other compared to all in sharply fell it whereas 1%, by grew GDP the which in try of the EU countries and of the rest of the world. Poland is the only coun- The 2008 financial and economic crisis left deep scars on the economies the debateon what effectsarecoverymay haveoneconomicgrowth. climate change on public finances also needs to be taken into account in and growth demographic of impact The threatened. not are activities economic that ensure to implemented be to measures stabilisation tive The strong deterioration of public finances undoubtedly calls for correc- Budgetary consolidation ratio A worrisome deterioration of public finances Based on the EU average, State debts were expected to increase by increase to expected were debts State average, EU the on Based dis- the stabilisers, automatic of effect counter-cyclical the to Due meas- stimulus economic some enacted States Member the Overall, the fi C ollateral na cial andeco d amage

n ca omic crisis u se d d b y

19 The Franco-German Tandem Confronts the Euro Crisis 20 fondapol | l’innovation politique of unpopularreforms. success the for crucial is timing office, because of term a in early duced which substantiates another conclusion: a reform policy should be intro- elections,legislative the in majority thin very a by him defeated Merkel Germany. for growth figure Second,rare Angela a – 2006-2007 in economic 3% reached First, consequences. two had party, own his from opposition despite pursued policy,flexible. he This more which market labour the making at aimed measures and spending social in reductions for provided which 2010, Agenda his launched Schröder Chancellor Germany’s2003,former by experience.In confirmed growth,as nomic why Franceshouldnotalsoprofitfromthisvirtuouscycle. reason apparent no is there Rhine, the of history.East German in est rate, low- interest the 1.5% a bearing bonds five-year issue to managed government German underway.Recently,the getting now cycle tuous vir the confirm clearly data Empirical finances. public rebuild to helps turn in which debt, government of servicing the easing by rates terest will handicapbusinessinvestments. markets capital the on pressure rate transactions. interest financial Any their for premiums risk higher demand will trends, risk budgetary tor investment-related spending. The financial markets, which closely moni- and consumption- their reduce therefore will They taxes. tomorrow’s sooner or later, citizens having clearly increases understood that today’s debts are tax expect to have will a businesses and such consumers Without prospect, growth. economic stimulate thereby to consensus a reached Germany and France that, to them lead could finances public balanced to return a regarding markets financial and actors economic will businesses and the of expectations the more.Since invest and consume to able households be then spending), its reducing (by savings to compensate for impacts on short-term demand. increases future growth expectations, inducing economic reactions likely Yet at the same time, the implementation of structural budgetary reforms stabilisation reduces internal demand, which negatively impacts growth. budgetary term, short the Certainly,in growth. economic with patible 8. European Central Bank, Monthly Bulletin, September 2010, pp. 85–86. ugtr cnoiain s hs peeust fr utial eco- sustainable for prerequisite a thus is consolidation Budgetary in- lowers consolidation budgetary sustainable hand,a other the On emn de nt eiv ta bdeay osldto i incom- is consolidation budgetary that believe not does Germany 8 If the State promotes - EMU’s macroeconomic the conditions without a by risk premium determined applicable to largely rate interest an at debts its service need, of the EMU, if not totally neutralised. A member country may then, in case in rates, weakened interest are higher and devaluation, risk inflationary as such policy, budgetary lax a to adaptation market of mechanisms markets. The financial the of reactions the main - and deficits budgetary which tains State the between broken is link existing the eurozone, uncontrolled since level, the joins State Member Community a deficits. When to lead can policies budgetary the at stability greater mote theEMU that functions betterandthattheeuro’s stabilityispreserved. toensure as so balance in finances public keep to cial threatened.then are cru- stability thus price is to It contributes it which guaranty the and independence latter’spolicy. The rate interest ECB’s the but growth, of loss the for blamed then is which policy budgetary growth. From a policy vantage point, it is no longer the Member States’ have an impact on private investments and therefore can curb economic level than if there were no excessive public debt. public excessive no were there if than level couldoblige which higher a at rates interest short-term keep to Bank Central European the indemand anincrease and pressures trigger inflationist might States, Member major of that particularly debt, in public increase excessive An discipline. budgetary requires which policy, monetary and policy financial between interaction efficient and smooth European Union’s GNP, which,the inthisrespect, isinsignificant. of 1% than more slightly of level the at situated is budget EU the whereas government, federal the of America, North in predominance, the in lies States United the of that as such zones monetary other from which must be closely coordinated with the former. but States, Member the of competence the within falls that policy cial finan- decentralised a with level supranational the at centralised policy monetary a combines which framework action institutional enjoys unique EMU a The Union. Monetary and Economic European the for particularly mandatory, are policies budgetary sustainable and Sound Financial policy within the EMU 10. 9. European Central Bank, Monthly Bulletin, October 2008, p. 53 ff. European Central Bank, Monthly Bulletin, July 2008, p. 65 ff. Moreover, budgetary policies must be coordinated in order to pro- to order in coordinated be must policies Moreover,budgetary h poe fntoig f h EU s hrfr peiae o a on predicated therefore is EMU the of functioning proper The 10 Higher interest rates interest Higher 9 The basic difference 21 The Franco-German Tandem Confronts the Euro Crisis 22 fondapol | l’innovation politique are incompatible. autonomy budgetary national complete and stability euro compromise; Germany.and Germans,the For any prohibits sense common economic binding a to choices budgetary rule. This is a significant political source of contention between France subordinate to unacceptable appears therefore it and prevail politics however, France, In Constitution. its to brake” its“debt byanchoring requirement this satisfied Germany matters. budgetary in sovereignty national of surrender broad-based a Growth Packoffersaneffectivebudgetarysurveillanceframework. etary deficits. The Treaty itself and the law derived from the Stability and nature, since all the Member States are required to avoid excessive budg- in preventive is clause”) the “no-bailout as (known commitment States’ Member other the for liable the be shall States Member the nor Community neither that provides which clause The debt. public funding from (official name of the Lisbon Treaty) expressly Union prohibitedEuropean the Centralthe Bank of Functioning the on Treatythe that effects over ultimately, toaweakeningoftheirpublicfinances. rising budgetary deficits, higher interest rates on the capital market and, could have a ripple effect on all EMU countries – a contagion marked by they curtailed, drastically not are slackness financial to incentives such EU would exchange the role of a monetary union for one of transfers. If to intervene as the Community’s “lenders of last resort.” In such case, the case of difficulties, can rely on the solidarity of the other members forced itself as solely responsible for the soundness of its public finances but, in excessive indebtedness in instances where the country does not consider incur to country a for incentives policy.create may Similarly,EMU the debt excessive an pursue to it allow would that concerned country the t tl pooe got. n iw f h cret ee o tx pressure tax of level current the of view In growth. promotes still it effects, long-term only has usually approach such if Even spending. of budgetary balances. their stabilise to mechanisms implement can governments how termine corrective de- to implement needs finances. EU public the to uncontrolled Yet against measures need the to as consensus general a is There Options for budgetary consolidation rpr M fntoig eurs tit ugtr plc rls and rules policy budgetary strict requires functioning EMU Proper It was in order to prevent the risk of “free rider” behaviour or of spill- Restoring balances should preferably be approached from the angle the from approached be preferably should balances Restoring bases andthereforetofallingtaxrevenues. tax reduced to led has crisis financial and economic the fact, this ing credits did not effectively achieve the objective sought. Today, exacerbat- tax through funded reductions that showed 1980s the in States United the in deficit. practiced “Reaganomics” increased an for compensate – of possible refunds would not – according to some empirical studies empirical some to according – not would refunds possible of petitiveness andpotentialgrowth. com- international influence negatively and determinants economic the An increase Denmark.in taxes and employment-related by costs, however, only matched would weaken countries EU for record a – GDP the of 55% represent expenditures where France, in needed particularly is spending in reduction a through finances public of stabilisation quired re- restrictions.The the from excluded be therefore should and growth for training, research, as well as investments in infrastructures, promote mean that all spending needs to be systematically reduced. Expenditures and taxes contributions adversely security affected employment social prospects and the growth. that This revenues does not of terms in much so intervened Sweden and Belgium Conversely, rates. unemployment declining and average the than higher rate growth a reached countries these when 1980s, the in Denmark and Ireland by shown as past, the in effective especially was policy a Moreover,spending.such public of control better a with begin to needs effort stabilisation the Europe, in 11. in independence its and ECB “technocratic” the of policy monetary centralised fully the challenge to authority political a create to attempt an as it viewed Germany,which by years many for opposed was cept con- This governance. economic or government economic an with EU the vesting of – materialised never had which – idea traditional French the of revival certain a to led and States eurozone the of surveillance EMU, the Greek crisis exposed the flaws in the budgetary and economic EU’sthe between interdependencies economies.the national rocking By reinforced the of because coordination for need considerable a is There Washington, May 2003. Priorities,Policythemselves?”andBudget ultimatelyCenterfor oncuts paytax the Richard Kogan,“Will However, in cases of tax reductions not offset by spending, the impact European eco ani as n stitutio n omic go nal alternative vernmet

23 The Franco-German Tandem Confronts the Euro Crisis 24 fondapol | l’innovation politique wage practices and consume and invest more. invest and consume and practices wage moderate its abandon should it that Europe,”say of and the “China it call who partners, European its from criticism of target the frequently more and more is surpluses.Germany trade German by offset tries,are necessary,” to quotethevaguephrasingusedbytwoleaders. only “when meet should Eurogroup’sleaders the which by practice the eurozone-specific obligations. The French president obtained adoption of creating Council,withoutEuropean State 27-Member the of scale a on German chancellor proposed that the economic government be organised fective pressuretoavoidbudgetaryandeconomicmiscalculations. ef- more exert one could government economic European a why understands no Germany, in why is That union. monetary the of cohesion the question into calling possibly control, of out get could forces centrifugal were “communitised” on a large scale, economic disparities would worsen, cyclical or dealing with exogenous shocks. If politico-economic parameters counter- whether countries, their for appropriate measures take to them to assume responsibility for politico-economic instruments that will allow intervene.to which Yet States Member the allow to important as just is it with instruments many have longer no States national and the Pact, Growth Stability the to conform to required been have policies budgetary national the and level Community the to transferred completely been has ating rules. Now that the responsibility for monetary and exchange policy an EU-widebudgetaryandeconomicpolicy. order to influence its monetary policy and exchange rates, and to pursue 12. tributing toinvestmentsabroad. The lackofGerman directinvestments France. Moreover, in the unimaginable trade balance surpluses are be offset by capital would outflows con- that practice a unions: labour the to policy wage their dictate who workers the is It agreements. business weakened because collective agreements are gradually constantly being replaced by individual being is power latter’s the that and unions, and the employers between negotiations of result the are increases wage the fact that the German government cannot pursue a wage policy, since arc Ats “a oiiu éooiu d lAlmge s-le n rbèe or e ate pays autres les pour problème un est-elle l’Allemagne européens?” Flash économique de de Natixis, December économique 2009. politique “La Artus, Patrick Massive trade imbalances, particularly in Southern European coun- European Southern in particularly imbalances, trade Massive found.recently was compromise The substantive than verbal more A EMU’sthe Berlin’soper misinterprets In main idea basic opinion,this 12 This opinion overlooks opinion This - doctrines. economic respective their over countries two the between disagreement economic policies carried out by Germany attest yet again to a profound financing its government debt. government its financing end of its century of leadership because of the problems associated with of 13%and9%their2010GDP. respectively, consisting, deficits budgetary colossal with confronted are Japan and U.S. countries. The other for consolidation fiscal of terms in challenges unprecedented raised also crisis financial the of sequels The France. of that below level a to rate growth economic the and countries OECD all of level lowest came scarce in Germany, thus lowering the private be- investment rate capital to This the this. of proof are countries other and France entering 14. 13. biggest debtor. Its leading creditor is China, which holds one-fourth of one-fourth holds which China, is creditor debtor.leading biggest Its inflow of foreign capital, but the latter has made this country the world’s the of because possible only is deficit been trade its Maintaining has producing. it than more consuming been has U.S. the years, thirty For given that its trade relations with the rest of the world are out-of-balance. rating agency, Standard&Poor’s. credit- the by forecasts recent to according 2050, by GDP of 435% to the U.S. population are taken into account, the debt ratio could explode financed through debt. If budgetary expenses resulting from the aging of only 60% of the U.S. budget was covered by taxes, the rest having to be 2019.by 17% 2010,to early 8 in by Already increase should payments interest quo, status the maintain to manage Americans if Even 2019. by GDP of 68% reach should and rising on keep will debt government Consequently,its years. few next the for level that at remain will but 2012, in 3% about to drop to expected are forecasts, deficits Office the The U.S.: Debt and international dependency Niall Ferguson, “An Empire at Risk,” Newsweek, 28 November 2009. Hans-Werner Sinn, President of the Institute of Economic Research, Le Monde, 28 October 2010, p. 20. Many experts are already predicting the decline of the U.S. and the and U.S. the of decline the predicting already are experts Many The most sensitive point is still America’s international dependency,international America’sstill is point sensitive most The The Un ited States andJ 13 The criticisms voiced in France against the against France in voiced criticisms The 14 codn t Cnrsinl Budget Congressional to According apan: Dela yed- actio n bomb 25 The Franco-German Tandem Confronts the Euro Crisis 26 fondapol | l’innovation politique sterling did in the early 20 pound the end,as an just to coming world’sis the currency reserve sole ship is expected to decline. It is also possible that the era of the dollar as evident.are consequences monetary U.S. of leader influence global The and military geopolitical, The relations. inter-power on impact erable of increasingthefederaldeficit. U.S.the of growth nential debt, risk the runs rates interest in hike every dollar-denominatedtheir on premium investments. expo- the of view In risk higher a demand later,will or sooner dollar-holders,who, of on the part expectations inflationist fuel only can policy expansionist ary deficit. budget- trade and Pursuingthe monetary exacerbated American U.S.,the in boom estate real the has,phenomenon latter the yet turn,in rates,interest and consumption private and public facilitated has which ation isreversed. U.S.deal,great a spending and less saving is China,in whereas situ- the the flawlessly: function to seems relationship symbiotic currency.This its of revaluation the prevent to market exchange foreign the on tions of monetary reserves, which have soared as a result of Chinese interven- out funded been have Purchases bonds. government long-term U.S. all would total 11 trillion dollars, and a one-point increase in its interest its in increase one-point a and dollars, trillion 11 total debts would its precarious: therefore is situation Its intervenes. policy etary budg- its in reversal radical no if 2050, by GDP of 750% reach could indebtedness its alarming: are forecasts Poor’s & Standard Greece). of that double (nearly GDP its of 200% to equal debt government despite Japan’s troubling, also is situation financial so, dramatically less though Japan: Atroubling financial situation then playatrendsettingrolewithintheEU. could tandem Franco-German responsibilities.The its assume to ready be to Continent Old the and finances sound have to whole a as Europe order.world the however,would,in That place require rightful its take to opportunity historic a Europe giving are China) and India Russia, empire. Distortions between global powers in favour of the BRIC (Brazil, That is why a number of experts are predicting the end of the American world’scurrency.the reserve as position its from slide painful and long a on currency British the started had century last the of half first the in itr sos ht xlsv gvrmn db cn ae consid- a have can debt government explosive that shows History dollar-denominatedin climb a prevented has glut savings This Asian th century. The United Kingdom’s colossal debt - to OECDestimates, Japan’s netdebtamountsto100%ofitsGDP. fers every year. Its monetary reserves exceed 1 trillion dollars. According Japan’sinto dollars billion 150 cof- brings GDP of 3% of surplus trade of savings.balance foreign The upon rely to need not does government the so high, still is rate savings household the Furthermore, deflation. of because yield positive a is there 1%, only of rate interest an Despite in the national currency are institutional and private Japanese investors. smoothly.proceeding is placement denominated bonds of holders Most now,debt.For the of servicing the to bond billion 100 add would rates 15. Member the Council, European the of President Permanent new the by spearheaded group working a as meeting of However,course the in unable to meet its budgetary commitments liable to automatic sanctions. European Commission proposed measures which would make any State some timeforstrengtheningtheStabilityandGrowthPact. gain to was May in deployed net safety euro billion 750 the of benefit only The solved. being from far are issues debt States’ normality.The to return summer.a and as viewed be not should Yetimprovement this The financial markets stabilized in the fall of 2010, after a stormy spring definitively collapse. the medium term: the Japanese supremacy of the 1970s and 1980s could in out ruled be cannot States United the of that unlike not situation cal sign in Japan that its public finances are being stabilised. no Overall, a criti- yet is There markets. financial foreign solicit to starts government Japanese the if rate exchange the with associated risk the cover to rates interest higher for call undoubtedly will They trend. this about cerned con- already are markets financial Foreign debt. public the absorb will who to as arise will later,question or the Sooner decline. the on still is spend its savings. Also, the ratio of young people to the total population and standards living current its preserve to wishes population older the Reforming the Stability and Growth Pact (SGP) trifft, Munich 2010, p. 65 ff. Konrad,HolgerZschäpitz, A. Kai eea rfr otos ee omltd I lt Spebr the September, late In formulated. were options reform Several Moreover, the drop in the household savings rate should accelerate if Emergi Schulden ohne Sühne ? Warum der Absturz der Staatsfinanzender alle uns Absturz der Warum ? Sühne Schuldenohne n g from thecrisis 15

27 The Franco-German Tandem Confronts the Euro Crisis 28 fondapol | l’innovation politique tion of “Prussian-style” austerity. Regardless, the Deauville agreement Deauville the austerity.Regardless, “Prussian-style”of tion Germany, this is more a matter of economic common sense than a reflec- tax policies calls for decentralized reliable rules ensuring and budgetary austerity. system According political to centralized mon- a a with as union etary eurozone the of nature unique The measures. unpopular adopting for suitable hardly environment an mode, campaign constant are being held almost every other month within the EU. The Union is in elections legislative governance, of terms year four-to-five with States, Member 27 are there as Inasmuch games. political in pawn a become to discipline budgetary allowing avoid rather would side, other the on rules.to way give not should policies that principle the of tue Germany, vir by sanctions such considering before latitude some States the allow and sanctions, the over control political retain to wishes France State. the of have countries two the that conceptions different extremely the euro’s long-termstabilitywaslaidon18October2010... President. French Time will tell whether the the first stone of the foundation for the to granted she concession the for – partner coalition own her – Affairs Foreign of Minister the even and MPs, Member European States, other by criticized cartel. harshly a was as Merkel Chancellor operating German been have rules budgetary EU with complied not have which countries The markets. financial the from pressure to due notably once, only reacted Council the time which during times, nine margin GDP 3% the exceeded eurozone, the into integration of Achilles’ heel has not been eliminated. Greece, in the course of ten years procedure whichisneverinitiated. a under for provided sanctions discuss to futile be would it that in void which they have never done before, themselves,to apply should they sanctions what own their on decide to decision. It would then be – as is now the case – the States’ responsibility this thwart could minority blocking a constituting States Member few Council. European A the by voting majority qualified upon initiated be only will procedure deficit excessive Moreover, rule. an majority) ified not rejected by the Council based on a qualified majority (reversed qual- are they that provided applied automatically be therefore will sanctions Financial 2010. October 18 on France Deauville, in meeting their ing dur Sarkozy President and Merkel Chancellor by reached compromise the reassert would which mechanism sanction dual a for opted States In this regard, the Franco-German “compromise” perfectly illustrates This agreement confirms only the existing legal situation; the Treaty’s de facto rendering the SGP null and - - n h fc ta te eae n h crepnig ue hs tre in started has France. rules corresponding the on debate the that fact the in interested very is country This 2016. of as GDP the of 0.35% over of ary rule, the well-known “debt brake,” which prohibits structural deficits reach compromises. to parties both of willingness the demonstrate to possible it made also 16. Chancellor effort. consolidation any drop to States Members indebted severely the induce would it 2013, in scheduled as expire to fail latter the Should 2010. May in established Fund Stabilization the perpetuate ened, a prerequisite must be met which consists of a commitment not to tight- be to markets financial the by imposed discipline budgetary the for order acknowledged.In be to needs again once bankruptcy State of can beenforcedwithouthavingtoamendthe Treaty. mechanism markets. This financial the by exerted pressure the without parliaments and governments concerned the by adopted been have not would Kingdom United the and Portugal Italy,Spain, in implemented programmes consolidation fiscal austere The process. disciplinary this from exempt is State No reforms. consolidation budget swift adopt to States indebted the severely the compel which in rates interest rising of sanctions form unavoidable imposes mechanism This mechanism. market the place: in already was mechanism disciplinary efficient and reliable a that 2010 indicated clearly markets spring financial the Nonetheless, in developments procedure. the depoliticise to failed have they because outcome, satisfying expected the produce to promise Growth Pact and Stability the reform to efforts current do not nor fruit, did bear Brussels in Council the by exerted pressure peer past, the In Strengthening the market mechanism depriving itselfoftheconfidencefinancialmarkets. is France down, rates interest its drive would which 2011, for set one expected in this country. In refusing to adopt austere budgets such as are the rules budget national forthcoming no rules, European by abide to controls.budget national implemented ready France’sof light In refusal Jacques Delpla, Réduire la dette grâce àla Constitution, Fondation pour l’innovation politique, 2010. Domestically, Germany willingly chose to enforce a stringent budget- In order for such mechanism to be fully operational however, the risk 16 Besides Germany, numerous other European countries have al- 29 The Franco-German Tandem Confronts the Euro Crisis 30 fondapol | l’innovation politique voidable andultimatelyjustified. una- be would mechanism resolution crisis new this of triggering the case,such years. In several for markets capital to access have longer no rescheduling, or “haircut,” of its public debts, the State concerned would methodical a Council’sconclusions.After the in stated as latest, the at Lisbon the to amendment an that hoping Treaty mid-2013 by ratified is a is France, resolve by Germany,aim,backed State’sthis to insolvency. Member In undertaken efforts the in part take to sector this induce banks. sector’sbanking The should mechanism new this in involvement the notably creditors, private by borne be should costs crisis States’ financial the on, now from that partners her convince to managed She failures. sovereign handling for procedure legal a of establishment the Stabilization Fund. Angela Merkel had her way on another issue, namely Article 125 (the “no-bailout clause”). In 2013, it will replace the current the Treaty’s amending without created be will stability zone’sfinancial euro- the protecting at aimed mechanism management crisis permanent new Germany.A and France between compromise a from stem again ruptcy,bank- State’s ratherthanrelyingsolelyontaxpayers. a of event the in losses the of share a pay should sector private the that crises,and future of management orderly ensure would which mechanism processing bankruptcy State a up set to proposing is would be the guaranty offered by such a fund. Germany, to the contrary, that the only way to prevent a Member State from being found insolvent opinion the of however,Paris,is countries. impecunious for fund term long- a establishing of States Member other and Commission European the by formulated idea the rejects and treasurer eurozone to the become having from Germany spare to wants hand, other the on Merkel, uoen akn Atoiy EA?Erpa Sprioy Authority Supervisory (EBA)?/European Authority Banking European without Stateshavingtomake furtherpoliticaldecisions. policies. Such a market mechanism can fully exercise its disciplinary role budget and economic their change to States the compelling thus turns, re- higher for ask will they risk, this account into Takingrisk. default the bear ultimately will loans State acquiring those – adopted is it that provided – framework debt-restructuring State regulatory this Within Systemic Risk The conclusions of the European Council of 28 October 2010 once 2010 October 28 of Council European the of conclusions The Market discipline could be strengthened if the newly-established newly-established the if strengthened be could discipline Market would let such a neutral arbitrator set the direction of the budgetary budgetary the policy, of acompromisebetweenParisandBerlinshouldbepossible. direction the set arbitrator neutral a such let would measures. consolidation fiscal the of France that doubtful seems it While would be the financial markets It which would dictate the speed and scope States. indebted severely to loans on return expected the increasing thereby rise, should ECB the through refinancings of costs The banks. commercial to credits secure to loans accept government countries’ to defaulting ceased Bank Central European the if tighter even be would expectations.Lastly,creditor structure discipline help market to used be view the Treaty. In addition, a legal procedure for sovereign failures could re- and sanctions the strengthen to anymore necessary be even not may eurozone.It entire the throughout tremors avoid 2010,to May in did it excluded. The eurozone would not even need its safety net any longer, as blackmail to resorting State insolvent an of possibility the and achieved States.Member other among eurozone’sThe be would stability financial effects contagion or turbulence financial cause nor system, banking tire be lessened, and such bankruptcy would no longer paralyse Europe’s en- for State loans State for ments to keep in their portfolios a certain proportion of equity earmarked (ESA)? were to force the banks which have failed to meet the SGP require- 17. currency, common the of stability the immutable: as principles three together.views them Germany realise to opportunity unique a is crisis beneficial totheEuropeanproject. “Franco-German a promoting for time,same the criticism endless invites bilateralism Franco-German this agreement between France and Germany, nothing happens in an Europe. Without At daunting. are overcome to needs tandem Franco-German the which future.challenges its The of decide will that phase a through set a new stage in the history of European construction. Europe is going taken during the European Council meeting of 28 and 29 October 2010 decisions The happen. never will it currency,or via happen either will The summer 2010 financial market turbulences proved that a new Europe Paris, juillet 2010, p. 19. WolfgangGlomb, The two countries’ objectives can only be similar, and the financial the similar,and be only can objectives countries’ two The Crise bancaire,Crise dette publique, allemandevueune Fondation , l’innovationpour politique, 17 . State’sMember A thus would risk bankruptcy systemic C oncl ” which is more harmful than harmful more is which diktat” u n sio 31 The Franco-German Tandem Confronts the Euro Crisis 32 fondapol | l’innovation politique governments and parliaments – what Robert Schuman called in 1950 a 1950 in called Schuman Robert what – parliaments and governments for projects common international,for as plane.need well a as is There European, a on urgent, most the become has consensus a for need the ment for growth. for ment require- the to stability for concern the oppose longer no would that strategy a formulate neo-liberalism,”and “egotistical German-style to colbertism” “narrow French-style today,opposing common are which tion to the test. It calls for Paris and Berlin to stop promoting stereotypes the detrimentofGermanexports. to revalued be to DM the caused have would and risky more far been have would speculation intra-European currency, common a euro. Lacking the without serious more much been have would crisis nancial fi- the that indisputable is it but Mark, Deutsche the of reintroduction a of idea the support population German the of 60% polls, recent to tute agreatthreattotheEU. the Netherlands, Hungary, Sweden, Denmark and France, would consti- in ground ungovernable.gaining become already Nationalism,is which then would Germany Deutschlands). Union Demokratische (Christlich CDU or Union, Democratic Christian German the from right farther party new a of creation the and movement right extreme an of rise the European construction to that of a financial transfer union could trigger so- Europe.for bomb cial particular,in Germany In reduce to attempts beadelayed-action any would union transfer financial or inflationist an as operating neighbours.eurozone German A their of those as same the be should investor and taxpayer French the of interests others.The sixteen of out three equalization, only financial of system German current than the GDP. more Under annual country’s or the of years, 60% 20 in euros billion 1.3 government Federal the cost alone unification German hyperinflation; of periods two through gone has Germany non-negotiable. is transfers financial of union a of and eurozone inflationist an of rejection German finances. The own its for accountability State’s each and independence, Bank’s Central the 19. 18. Hans Stark, “France -Allemagne: Une relation complexe,” Konrad Adenauer Foundation (Paris), 2010. (CERFA). Relations Franco-American for Committee Study 2009, March 11 de of étrangère la discussion politique Breakfastl’Allemagne,” sur son impact et internationale financière crise “La Schockenhoff,Andreas The euro crisis has been putting Franco-German monetary co-opera- monetary Franco-German putting been has crisis euro The The euro has already been vastly discredited in Germany.in discredited According vastly been already has euro The 19 It is in the very area of monetary co-operation that co-operation monetary of area very the in is It 18 subsidize the subsidize Länder and GermanyinthedirectionofNorthernEasternEurope.” region Mediterranean the of direction the in France role, key a assume to and neighbours respective their to of countries behalf two on “speak the upon calling integration.”thus European was towards He progress agreement is a condition which is necessary, but not sufficient to achieve voices.”hesitant and that prudent added “Franco-German most He the by influenced be to process, the in themselves, allowing without cepts con- and proposals convincing present to able be must Germany and daily the by published article lengthy Minister Wolfganga in wrote Schäuble Finance later,German years solidarity.”sixty facto Again, de a create first which achievements concrete through built be will plan.It single a de facto solidarity: “Europe will not be made all at once, or according to on 2 November 2010: “France 2010: November 2 on Zeitung Allgemeine Frankfurter 33 The Franco-German Tandem Confronts the Euro Crisis

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US elections and trade policy: redefining EU-US relations? Julien Tourreille, October 2008

Defence, immigration, energy: Franco-German views Elvire Fabry, October 2008

*The titles marked with an asterisk are available in English SUPPORT FONDAPOL

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A free-market, progressive and European think tank

The Fondation pour l’innovation politique contributes to pluralist thought and the revival of public debate. It approaches its work from a free-market, progressive and European perspective. As a platform for expertise, thought and debate, the Fondation strives to describe and decipher French and European society as it evolves.

The www.fondapol.org website features all the Fondation’s work, as well an ongoing series devoted to the effects of the digital revolution on political practice (Politique 2.0).

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fondapol 11, rue de Grenelle 75007 Paris – France Tél. : 33 (0)1 47 53 67 00 [email protected] 9 782917 613887 ISBN : 978-2-917613-88-7 3 €