The EU’s Franco-German engine — written off as a spent force by some — has sprung back to life in the face of the coronavirus crisis, with Paris and Berlin working in tandem to unblock a €500bn rescue package for the eurozone, a deal which at one point had been close to collapse.
Despite deep differences between France and Germany over the EU’s direction, the two countries were instrumental in securing last week’s emergency deal to provide financial aid to workers, companies and governments struggling as a result of the virus.
The close working relationship between Olaf Scholz, German finance minister, and his French counterpart Bruno Le Maire, was crucial in overcoming Dutch and Italian resistance to aspects of the plan.
“Scholz and Le Maire have operated extremely effectively together to help drive The Hague and Rome towards a deal,” said one EU diplomat. Angela Merkel, German chancellor, and French president Emmanuel Macron “also did their part behind the scenes”.
EU diplomats said that Franco-German co-operation was helped on this occasion by the fact that both countries were happy with the draft statement under discussion by finance ministers, meaning they could focus their energies on winning round other capitals.
Mr Le Maire said the fact that France and Germany had adopted a common position from the start had been the “key to the success” of the deal.
The close working relationship between Olaf Scholz, German finance minister, and his French counterpart Bruno Le Maire was crucial to forging a deal © AFP/Getty Images
“We have now all the required tools, not only to face the consequences of the coronavirus crisis, but to have a quick common recovery on a co-ordinated basis,” he told the FT in a telephone interview.
Yet the accord reached on Thursday failed to paper over all the disagreements that exist between France and Germany. The two countries remain on opposing sides of the eurozone’s great battle-line — the mutualisation of debt.
Eurozone finance ministers agreed to create a recovery fund designed to help the single currency area bounce back once the coronavirus crisis is over. But Paris and Berlin are divided over how this tool will be financed. Paris is still wedded to the idea of mutualised debt — a concept Berlin rejects — either through so called corona bonds or some other instrument.
“It is clear that they are not on the same page yet when it comes to the recovery fund,” said Christian Odendahl, chief economist at the Centre for European Reform. “The divide is still there.” Or, as one German official put it, “We agreed to disagree”.
The relationship between Messrs Scholz, a phlegmatic Social Democrat and former mayor of Hamburg, and the ambitious Le Maire, a fluent German-speaker, was forged on an evening in May 2018 when the two met for talks at the Villa Borsig, a guesthouse of the German foreign ministry in a leafy suburb of Berlin. Supposed to last a couple of hours, the meeting turned into an all-nighter, breaking up at 7am the next day.
Another mammoth session was held a month later in the Hôtel de Noirmoutier in Paris, paving the way for a breakthrough summit between Mr Macron and Ms Merkel in Meseberg a month later which resulted in a wide-ranging agreement on eurozone reform, including a proposal to establish a common budget for the single currency area.
Despite the warm words at Meseberg, Mr Macron grew increasingly frustrated at Ms Merkel’s lack of enthusiasm for his vision of EU reform. But through it all, Messrs Scholz and Le Maire remained on good terms.
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Since Meseberg, the two have found common ground on issues ranging from banking and capital markets union to reform of the European
Stability Mechanism (ESM), the EU’s bailout fund, which will play a crucial role in efforts to stem the corona crisis.
“There’s been this long sequence of agreements on policy stretching back to Meseberg,” said one senior German official. “We have to fight to come together on all these issues, but we always get there in the end.”
That same spirit of co-operation was in evidence last week, too. The coronavirus rescue package had been close to collapse when Dutch finance minister Wopke Hoekstra demanded that aid from the ESM come with macroeconomic conditions attached.
Diplomats said that Mr Le Maire and Mr Scholz were incensed when it became clear at 5am on Wednesday that the all-night talks were deadlocked.
Speaking to reporters, Mr Scholz said pointedly that it was “inappropriate” to make aid contingent on “fundamental debates about the pension system, the tax system and the labour market”. Mr Le Maire said the breakdown was a source of “shame” for Europe.
But Paris and Berlin made a concerted effort to get the talks back on track, and broke down the resistance of the Dutch. Mr Macron and Ms Merkel spoke later on Wednesday and again on Thursday shortly before the finance ministers resumed their deliberations. Mr Macron talked to the Dutch prime minister Mark Rutte, urging him to show flexibility. And Mr Le Maire and Mr Scholz had numerous bilateral talks with ministers from other countries to scope out the possibilities for compromise. EU diplomats said the push gave much needed support to efforts by Eurogroup president Mário Centeno to get a deal over the line.
“Co-operation with France was absolutely key to bringing this together,” the German official said. “Germany and France really laid the groundwork for the agreement.”
“Here were the elements to build a rapprochement: economic sovereignty, defending the single market,” says Elvire Fabry, a senior research fellow at the Jacques Delors Institute. “[The crisis] amplifies the trends of recent months and creates a degree of common interests.”
But the unanswered questions over the post-coronavirus recovery fund, and whether members of the eurozone issue joint debt to finance the rebuilding effort, will continue to be a drag on the Franco-German relationship. There was fury in Ms Merkel’s chancellery when Mr Macron teamed up with eight other European leaders to demand eurobonds as a solution to the corona crisis.
“After a somewhat slow start, the Franco-German engine worked at full speed during the last few days and did its magic,” said the EU diplomat. “But we should not pretend that the deeper debate over debt mutualisation is resolved.”
