Germany’s two indispensable relationships
Paweł Świeboda
Commentary
As German coalition agreement is sealed off, an important smallprint to read is the one about Berlin’s relations with two of its neighbours – France and Poland. They both feature prominently in the text on Germany’s European policy. They are also called the country’s „indispensable partners“ by Berlin’s top diplomats. At the same time, France and Poland are set to pull Germany in different directions. A common ground between the two will be necessary to make sure that the reconstruction of the eurozone does not endanger cohesion in the wider European Union.
France has had a much greater impact on the changes in the eurozone governance system than is often assumed. It would have wanted the eurobonds to be operational and the economic government to be in place while they are not. However, many of the emergency solutions worked out in the eurozone in the last few years carry more of a French imprint than the German one. This is especially the case with the role of the European Central Bank and its flagship operations designed to backstop the euro. Needless to say, Paris is deeply tormented by the fact that the main reason for its borrowing costs to be as low as they are is that Germany de facto underwrites French debt with the intermediation of the ECB.
France has traditionally had one major preoccupation with respect to the future of the eurozone. It would like to see it properly institutionalised and singled out from the wider EU context. Advisors to President Hollande want the eurozone secretariat to be like the European External Action Service with thousands of officials carving out economic policy against the odds of divergent orientations – the one in Berlin focused on stability and precaution, the one in Paris continuously attached to an activist role of the state. In spite of numerous reiterations of the Franco-German plans to harmonise the two countries‘ corporate tax systems, work is still ongoing on the issue and little wider effect can be felt in terms of alligning the French and German fiscal cultures. Infrastructure for dialogue is elaborate but its policy impact remains disappointing. The spring gathering of the Franco-German Economic and Financial Council in Berlin concluded with the plans to „exchange views on tax incentives to support family policy and to combat unemployment“. Much energy was then invested in the financial transactions tax initiative which President Sarkozy once forced on Chancellor Merkel. Credibility is therefore not what the Franco-German tandem has been strongest at.
A taste of what France wants for the eurozone can be found in the joint Franco-German proposal from May, the institutional part of which was almost entirely written in Paris. It talks of more euro area summits, tasking employment and social affairs, research and economics ministers with „taking work forward“ on specific euro area matters as well as „dedicated structures“ within the European Parliament to ensure democratic control and legitimacy and finally the permament President of the eurogroup of finance ministers. Some of these improvements, like the latter one, make perfect sense and can only add coherence to the way the eurozone is managed. The question mark is about what they will mean for the eurozone’s relations with non-eurozone EU countries. This is a point on which Germany’s other „indispensable ally“, Poland, will not be willing to compromise.
Having cruised successfully through the crisis, Poland wants to be half-in, half-out of the eurozone. Its political ambitions push it as close as possible to the heart of Europe, which inevitably means the eurozone. But Poland has also enjoyed the economic room for manoeuvre in the crisis and feels unenthusiastic about giving it up in exchange for the swelling constraints of the eurozone. Its public opinion has watched carefully the travails of the new-old single currency and has drawn logical conclusion that it is better to wait on the sidelines until reinvention is complete.
In the meantime, Germany’s relations with Poland have undergone a thorough overhaul. Mutual distrust is gone. The two countries now think alike on such unlikely issues as relations with Russia. All this means that determination to avoid irritants will be strong when the new German government is formed. The relationship between eurozone and non-eurozone countries is the one risk that stands out.
Much effort has so far been required to ensure that the new eurozone mechanisms such as the banking union or the contractual arrangements for reform, due to be approved at the December European Council, remain open to non-eurozone countries. A recognisable trend had emerged with the initial European Commission proposals paying little more than lip service to the needs of non-eurozone countries. Elaborate negotiations have been necessary to solve that problem, be it on the single supervisory mechanism or now on the common resolution fund in the banking union.
A better solution would be to formalise the „pre-in“ group of countries and offer them most of the benefits that come with eurozone membership in exchange for most of the responsibilities. The „pre-ins“ would shadow the eurozone in policy terms. They would be treated as de facto members when new initiatives emerge. This new set up would make Britain‘s plans of defining afresh its relationship with Europe easier. But it would also require Germany to show masterly balancing skills in glueing these three diffuse echelons together. In order to preserve its two „indispensable relationships“, Germany will have to find a way to do so.
