French reform backlog hangs over Merkel and Macron meeting

When Emmanuel Macron makes his first foreign trip to Berlin after his inauguration on Sunday, chancellor Angela Merkel has just one wish: a leader who will reform France and, by extension, revive Europe’s ailing Franco-German motor.

For 12 years Macron’s predecessors – the charming Chirac, the mercurial Sarkozy and the lame duck Hollande – talked the talk about shaking off French economic torpor. But trust and patience are wearing thin in Berlin, and now their hope is that France’s youngest leader since Napoleon can walk the walk.

“I haven’t the least doubt that we will work well together,” said Merkel after his election victory, before adding archly: “What France needs now is results.”

German officials note drily that, like his predecessors, Macron is no stranger to grand plans. Accompanying Hollande to Berlin in 2012 as an adviser, Macron pushed the president’s campaign promise of deficit spending to “reorient Europe”. Without French economic reforms, though, Berlin didn’t budge.

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A year later Macron co-authored an 11-page Franco-German declaration of intent, promising more French reform as part of a wider quid-pro-quo of greater German public investment to stimulate pan-EU growth and even deeper euro zone integration. That plan disappeared into a drawer amid revived euro crisis tensions.

In 2014, Macron was back again with a “new deal” promising that France would make €50 billion in public savings if Germany spent €50 billion more in public money to reduce its highly controversial trade deficit. This latest reform-for-investment plan was given a cool reception by Merkel and her flinty finance minister Wolfgang Schäuble.

National interest

A decade after its own social and economic reforms, with the German economy booming, Berlin insisted it was in the French national interest to take a similar path.

In 2012, Macron’s description of the Franco-German dilemma drew nods of agreement in Berlin: which was willing to dance but in disagreement on the steps. “We need to agreed on the sequencing of the steps,” mused Macron then.

But Berlin insists the steps are clear: Paris has to go first and, until it brings its deficit below the euro area’s debt ceiling – 3 per cent of GDP – there is nothing to talk about.

On Sunday Merkel will repeat her good wishes for the French leader but, facing into her own election season, will warn him not to ask for too much too soon. The most Macron can hope for at the end of Merkel’s third term is Berlin’s support for a European Monetary Fund along IMF lines.

In a pre-emptive strike, Germany's Bild tabloid on Tuesday suggested Macron's previous European proposals – from EU joint sovereign debt "eurobonds" to joint bank guarantee schemes – "should sound the alarm in Germany".

For Germany’s centre-right too many French demands amount to the same thing: reform shortcuts bankrolled by Berlin. For that reason Macron is hoping that by year-end he will no longer have to deal with Merkel. Social Democrat (SPD) challenger Martin Schulz, the former president of the European Parliament, has signalled greater openness to French concerns.

Trade partners 

“We have to use our strength more effectively to make our European partners stronger,” Schulz said on news of Macron’s win. Unlike Merkel and Schäuble, the SPD leader agrees that it is not sustainable if Germany continues to export far more to its trade partners than it imports from them.

Yet already struggling in polls after a stellar start in January, Schulz knows there are limits on how far he can lean out the window on the election train to support Paris given that ideas like eurobonds are a vote killer in Germany.

Berlin observers expect little progress for the rest of this year given the uncertain outcomes of French and German parliamentary elections.

“But with Macron’s presidency, Franco-German co-operation on euro zone issues, as well as on security and defence policy, can be intensified,” said Dr Daniela Schwarzer, head of the DGAP think tank.

Across the political landscape the French president-elect enjoys huge goodwill and no small measure of hope in Berlin. As they say here: hope dies last, but then it dies.