Euro Zone Crisis Straining Hollande and Merkel’s Unity

When François Hollande and Angela Merkel marched shoulder to shoulder into the EU summit on Thursday night, their public show of unity was undermined by the German chancellor, with a stern look on her face, vigorously shaking her head.

Euro Zone Crisis Straining Hollande and Merkel’s Unity
Alessia Pierdomenico | Bloomberg | Getty Images

The joke quickly flashed around the Brussels press corps, alert to every nuance of body language between the two, that Ms Merkel was saying "nein, nein, nein!" to the French president.

In fact, they had just stitched together one of the many compromises – this time on the timetable for a eurozone banking union – that Paris and Berlin have been forced to make repeatedly as they battle to overcome the single currency crisis.

Nevertheless, the past week has marked a testing time for the EU's most important bilateral relationship, with the Socialist Mr Hollande letting fly with some pointed barbs at Ms Merkel – and receiving return fire across the Rhine.

Mr Hollande was especially riled that just when he thought the eurozone should be concentrating on short-term moves to cement recent relative calm in the markets, Germany was dragging its feet on banking union and instead making politically contentious proposals on deepening political union.

"It has not escaped my notice that those who are most eager to talk about political union are sometimes those who are most reticent about taking urgent decisions that would make it inevitable," Mr Hollande said in an interview with six European newspapers.

His denial that he was "not targeting anyone in particular" was less than convincing.

"Today there is an enormous degree of distrust on both sides that is due to a genuine lack of mutual understanding of the domestic policy issues that drive their positions," said Thomas Klau, an expert in Franco-German relations at the European Council on Foreign Relations. "It has hardly ever been as debilitating as it is today."

Mr Hollande's willingness to challenge Ms Merkel openly is partly explained by his need to strike a different pose from his centre-right predecessor Nicolas Sarkozy, who forged a close relationship in the fires of the crisis with Ms Merkel – also of the centre right – dubbed "Merkozy".

Despite his recent election to a five-year term and his comfortable majority in the French parliament, Mr Hollande has restive leftwing and eurosceptic factions within his Socialist party that his attacks on both austerity policies championed by Germany and Berlin's federalist European ambitions help keep under control.

At the same time, Mr Hollande has been given more licence than Mr Sarkozy enjoyed to voice public differences with Berlin by financial markets which, for the time being at least, are treating France more like Germany than Spain or Italy, despite public debt rising to 90 per cent of gross domestic product. A year ago, that was not the case.

"Mr Sarkozy often suppressed his real personal anger over German positions because of the fear that markets would treat France as being part of the European south," Mr Klau said.

In Berlin, the government always expected the first few months of the Hollande administration to be a bumpy ride. It is conventional wisdom that it takes a year to adjust to a new leader on either side – and often there are sharp differences along the way.

The "Merkozy" relationship was never easy, although the two were forced by the crisis to co-operate closely.

The fact is, both on economic policy and attitudes to eurozone governance, the two capitals always begin from very different positions, whether there is a socialist or conservative administration in Paris.

The concern in Berlin is over what is seen as the absence of a clear strategy on eurozone reform from the new French government. There is a deep suspicion that France is happy to have a weaker euro, higher inflation, and a looser monetary policy than Germany.

Mr Hollande's refusal to incorporate the recent "fiscal compact" into the French constitution is one reason that Germany is now pushing for every country to sign a bilateral budget "contract" with the European Commission, that can be enforced by a powerful budget commissar.

But Paris regards Ms Merkel as being overly focused on building deeper European political integration in a way that ignores deep-seated reticence in France reflected in the 2005 referendum defeat of the then-planned EU constitution. "There is insufficient awareness in Berlin of the extent to which the No vote was deeply traumatic for the Socialist party and Mr Hollande himself," said Mr Klau.

Ms Merkel, however, reacted with characteristic phlegm to the latest spat on Friday.

"We're all different people. Still, we've always found ways and means to come to converging views, and we've even found a possibility this time to come to a solution on a matter of substance."

Additional reporting by Peter Spiegel in Brussels