FRENCH-GERMAN POLITICAL CONFRONTATION INSTEAD OF VISION

The President of the French National Assembly Mr. Claude Bartolome is calling for a political confrontation with Germany to reject austerity. It should be mentioned that indeed François Hollande may have campaigned on policies to end austerity and return to fiscal stimulus, but once he was elected and the French parliamentary election was over, he actually reverted back and pushed through an austerity budget in France with the consolidation of about € 30 billion. And he also pushed through the fiscal compact, which was, of course, very much Chancellor Merkel's idea.

THE REAL ISSUE IS THAT FRANCE HAS YET TO FORMULATE A COHERENT VISION FOR WHERE IT WOULD LIKE EUROPE TO GO, AND HOW IT FORESEES THAT PROCESS DEVELOPING. FOR ITS PART GERMANY HAS A MUCH MORE DEVELOPED, LONG-TERM VISION FOR WHERE IT WANTS TO TAKE THE EURO AREA WHEN COMPARED TO FRANCE.

Germany is entirely willing to provide significant financial support to other euro area countries, but only in return for fiscal authority and structural reforms in these countries, as well as commitments to deeper political integration in the euro area. There's a very clear quid pro quo here between Germany and the peripheral countries in the euro area. It is an approach that, by and large, is in line with many of the demands of the European Central Bank. One of the reasons why the German view has tended to prevail almost invariably throughout this crisis is because there has been on many of these issues a very strong alliance between Germany and the European Central Bank.

French opposition to German proposals for more political union is essentially a reflection of very long-standing positions and clashes between France and Germany that we have seen over many decades in the EU. Germany is a federal state, and quite comfortable with multiple layers of elected government. In that sense, the European political union would just be another layer. In France, the historical position on EU integration have been very much the opposite. France has always advocated the need for more fiscal integration, ultimately culminating in euro bonds and those types of measures, but has always resisted handling over national sovereignty and joining a political union. The French domestic political system is very different. The French president is a president that has much more power than say the U.S. president, and the French parliament has absolute majority over all policy areas in France and can dictate what regional governments do. Therefore, sovereignty in France is a much more touchy issue and it is much more difficult for the French to give it up in return for more fiscal and financial integration in the euro area.

Let's face it: The actual influence of France is a lot smaller than it has been in the past, because GERMANY IS THE FINANCIAL AND ECONOMIC ANCHOR OF EUROPE and has a more important role to play. There's no doubt that the Franco-German axis is absolutely critical for European integration to move forward. And that has historically been the case; it's always been the locomotive. BUT, there is an important element that is quite different this time around, relative to earlier periods of euro area integration. The earlier European processes of European integration and institutions were reflecting a political vision of a unified Europe. That was a vision that was ultimately the outcome of Franco-German compromise. But the process that we're in right now is quite different because THE CURRENT PROCESS is NOT AN INTEGRATION THAT IS DRIVEN BY POLITICAL VISION; IT IS AN INTEGRATION THAT IS DRIVEN BY POLITICAL, ECONOMIC, AND FINANCIAL NECESSITY. It is the recognition that the euro area needs to reform its basic institutions in order to survive, in order to be viable. In that process, it is perhaps less obvious that France and Gemany need to agree before anything can happen. Political confrontation or not, Germany is a sort of veto player in Europe right now. It's up to France to come up with a better vision for Europe.