With their opposing views on how to solve the eurozone crisis, the first meeting of Germany’s chancellor with a socialist French president could have a profound impact on Europe’s future
The Paris Bar, a popular haunt for west Berlin intellectuals of a certain age, was humming with conversation and the clink of glasses and cutlery last week as actors, theatregoers, artists and journalists sipped wine or tucked into steak frites in this Gallic enclave in the German capital.
Beneath a red neon sign, Philippe and Paula pulled on cigarettes and discussed their respective governments’ different approaches to the euro crisis. “You could say we are like chalk and cheese,” said Paula, a 39-year-old German writer. “But that sounds quite boring. So let’s say more like bratwurst and Chateau Margaux.”
Philippe, 42, a scriptwriter from Paris (both of them preferred not to give their family names), nodded in agreement and chuckled. “Going back to the chalk and cheese metaphor: the difference between us is that the Germans would be happy to eat chalk if they were told it would solve the economic crisis, while the French would not be prepared to give up their cheese.”
Food metaphors abound these days before the hugely significant Franco-German summit on Tuesday when France’s newly elected president, François Hollande, will visit Germany’s Angela Merkel only hours after he takes office. They have never met before.
Although described by officials on both sides as primarily a meet-and- greet occasion rather than a political exchange, the evening – during which the two will enjoy a working supper in Berlin’s cuboid chancellory (menu yet to be revealed) – will be dominated by Europe’s increasingly controversial austerity drive.
Most have predicted a tense meeting between the German conservative and the French socialist. Merkel has unerringly championed austerity, while Hollande told a cheering crowd on the night of his election that austerity “need not be Europe’s fate”.
It is a critical moment in European politics. The main driving forces of the eurozone are at loggerheads. Hollande does not want to sign up to Merkel’s fiscal pact, which places strict limits on sovereign debt and gives the European court of justice a role in enforcing economic discipline. Merkel has insisted she will not back down. Meanwhile, voters in Greece have rejected pro-austerity parties at the polls, leaving the country on the brink of exiting the eurozone unless the electorate can be persuaded to change its mind. And the spectre of economic collapse in Spain is looming.
The French mood is bullish. Benoît Hamon, spokesperson for the Socialist party, said: “Angela Merkel is sticking to her position, but she cannot override the will of the French people. If nothing budges, the treaty won’t be submitted for ratification in France.”
Pierre Moscovici, campaign director for Hollande and the man charged with making sure the presidential handover runs smoothly, said he was confident there would be a compromise on growth. “They will speak. There has to be a proper discussion between the two heads of state. François Hollande’s aim is clear and hasn’t changed; it is to reorientate the European construction in a way that is more favourable for growth.”
Moscovici, a former minister of European affairs, added: ‘The small experience I have of these things … is that you will find a compromise. I’m optimistic that things will go well.
Hollande is not alone in arguing the revisionist case. From the United States government to the International Monetary Fund and increasing numbers of European governments, pressure is growing on Germany to relax its approach to austerity, which is increasingly being seen as hindering economic recovery.
Merkel’s old political ally, Nicolas Sarkozy, is out of office. The recent fall of the Dutch government, amid disagreement over strict austerity measures, has left Merkel still more isolated in her insistence that belt-tightening is the only plausible route to economic recovery.
Across the continent, a growing number of voices now suggest that the problem is not just southern European profligacy, but also German parsimony.
This is the nation which has some of the highest labour costs in the world, but where wages have been kept low compared to the rest of western Europe; where wage discipline among workers and employers has come to be seen as a patriotic act. Add in a huge trade surplus and Germany’s competitive advantage over its European neighbours is enormous. The resulting imbalance in the eurozone is helping no one.
Merkel remains unmoved, insisting last week, despite the criticisms, that the purse strings cannot be loosened. Her matter-of-fact reaction to the crisis led the Süddeutsche Zeitung newspaper to observe that “rather than behaving as if she had a European crisis to deal with … it was as if she was bending over the assembly instructions for an Ikea cupboard”.
“We’re talking here about the future of Europe,” Merkel said later, with rather more of a flourish. “And because of this the fiscal pact is simply not up for discussion.” While she is in favour of boosting growth, spending to stimulate growth is no option, she says, as it “would send us back to square one”.
Josef Joffe, publisher of the weekly Die Zeit, complained last week that she was being unfairly treated and that anti-Merkel sentiment had reached a peak after the French and Greek elections.
“She’s completely on her own now, seen to be stopping Europe from getting back to good health with her stinginess and teutonic arrogance,” he said. “Which is a fiction on two fronts. Firstly, decades of waste are to blame for Europe’s [bankrupt state]. Secondly, it diverts attention from the real illness … Europe’s [lack of] competitiveness.”
Merkel has enjoyed very high personal popularity ratings during the almost seven years she has been in power, and her steadfast handling of the euro crisis has served only to solidify her support at home. According to a recent poll, 61% of Germans said Merkel should stick to her stringent pro-austerity stance.
But recent events in France and Greece have undoubtedly left the chancellor vulnerable. Until now, Germany’s opposition has been reluctant to challenge Merkel’s insistence on budgetary discipline. Not any more.
“We are seeing the result of this policy in Greece where the radical right and enemies of Europe are entering parliament,” Sigmar Gabriel, head of the Social Democrats (SPD), said in an interview. “Almost all economists have long shared the criticism of Merkel’s unimaginative imposition of austerity.”
Another flank opens up this weekend with a key election in Germany’s most populous state – and political bellwether – North Rhine-Westphalia. With next year’s general election looming on the horizon, this political test will provide a crucial guide to Merkel’s political future.
North Rhine-Westphalia is indebted to the tune of €230bn (£185bn) and Merkel’s Christian Democratic Union (CDU) has been vigorously campaigning on the pro-austerity ticket.
“Angela Merkel cannot seem to be credible and strong if policies that cause debt to rise are being pursued indecently in Germany’s most populous state,” said Norbert Röttgen, the conservatives’ leading candidate.
At election rallies in the state, Merkel has often repeated the phrase that has earned her the nickname “the Swabian housewife” – the model German citizen famed for her thriftiness – giving outsiders an interesting window into the German soul. “At the end of the day it’s quite simple,” she said at one rally. “Do not spend more than you earn.”
The statement reflects the pragmatism that has shaped 57-year-old Merkel’s political and personal life. This is the woman who when she left her first husband (admittedly during the days of the economically straitened East German regime) took the washing machine with her.
But if opinion polls are anything to go by, Germans in North Rhine-Westphalia at least are not buying into the austerity argument. The Christian Democrats are trailing their closest rivals, the Social Democrats by several percentage points.
Commentators and analysts are now talking of a rethink or even a backlash taking place, which is likely to become even more focused when Hollande arrives in town. “The German discussion is moving a notch closer to the international debate on whether austerity has become self-defeating because it is implemented in an overly-brutal way,” according to Sebastian Dullien of the European Council on Foreign Relations.
There are other signs that Germany is prepared to water down its hardline stance, such as the announcement las week by the Bundesbank that it will in future tolerate higher inflation in an attempt to help rebalance economies in the eurozone.
Although that instantly triggered fears in the popular press of a return to the hyperinflation that haunted Germany in the 1920s, Carsten Brzeski, an economist with the Dutch bank ING, welcomed the decision, saying it amounted to an admission by Germany that it “must take responsibility for finding a new equilibrium in the eurozone”.
Finance minister Wolfgang Schäuble also signalled a willingness to accept higher wage increases in the hope that it might boost Germans’ readiness to spend and bring it on to a more equal footing with other European nations.
“So far,” said Dullien, “Germany has been the veto player preventing any policy change. If Germany’s economic elite is now changing course, this might hint that there is a room for compromise between Angela Merkel and François Hollande towards policies which might really help to overcome the crisis.”
So while Tuesday’s meeting might not be a love-in, neither does it have to be a bust up; rather perhaps, as the financial analyst suggested, it’ll be a hard-to-digest black-bread marmalade sandwich.