There’s Good Reason to Unite
November 29, 2011 / Thomas Kleine-Brockhoff
New York Times
This essay was originally published by the New York Times. It can be read here in its original form.
According to Angela Merkel, Europe will fail if the euro fails. And the euro will fail, one might add, if the Franco-German alliance fails. Disturbingly, there are signs of strain in that crucial relationship — at the most dangerous of moments.
Germany and France, the two largest economies of the euro zone, are increasingly unequal partners. Germany’s population is about a third larger than France’s. That did not matter much as long as Germany wasn’t pulling its full weight after unification in 1990. In the early 2000s, Germany introduced economic reforms that succeeded in transforming the country from “the sick man of Europe” to “Europe’s powerhouse.” Consequently, Germany’s economy is now about a third larger than France’s. That difference is no longer trivial, especially because France has yet to introduce some of the reforms that fueled Germany’s comeback.
This reform gap limits France’s firepower in the current crisis, and it is at the heart of the policy differences with Germany. France cannot do much more to help its ailing euro zone partners without endangering its own triple-A rating. Therefore, it wants to collectivize risk in the euro zone. In the end, France sees the European Central Bank as the ultimate backstop of the common currency. Turning the central bank into a lender of last resort is a proposition that Germany adamantly opposes – on principle as well as for practical reasons. The resolution of this conflict about liability, solidarity and economic reform will be the make-or-break moment for the whole euro zone.
The Treaty of Maastricht was based on a historic compromise between France and Germany. France consented to German unification, and Germany agreed to give up the symbol of its postwar success, the Deutsche mark. Twenty years on, a deal of similar magnitude is necessary. It will be so controversial that it may require the ultimate political sacrifice of both countries’ leaders: Germany will have to consent to some tightly regulated form of full rather than limited liability for the travails of the euro zone while France will have to swallow that the rules governing this transfer union will look largely German. What makes another historic compromise likely is the national interest of both, France as well as Germany: If Europe fragments, both countries’ affluence and influence will be diminished.
Thomas Kleine-Brockhoff is a senior trans-Atlantic fellow and senior director for strategy at the German Marshall Fund of the United States, in Washington.
Image by the German Chancellery.