It’s no secret that Angela Merkel and David Cameron supported Nikolas Sarkozy in the recent French Presidential election.  This ideological preference was understandable, particularly since the idea to put in place the current EU fiscal pact came from Sarkozy and Merkel.

This plan has been central to the fight to relieve the Eurozone crisis. Sarkozy’s defeat represents a major blow to Chancellor Merkel.  Put simply, she has lost her biggest European ally. From the British perspective we can’t describe Sarkozy and David Cameron as great friends, certainly not after the Prime Minister’s refusal to sign the fiscal pact, but Anglo-French relations appear to be based on a series of mutually recognised stand-offs which persist regardless of who holds office.  The two countries continue to disagree over economic issues and the election of Francois Hollande has done nothing to change this.

According to “Der Spiegel”, the influential German magazine, a verbal agreement has been reached between Chancellor Merkel, and her counterparts in Britain, Italy and Spain to stand firm against François Hollande. Merkel denies this but is clearly infuriated by Hollande’s intention to renegotiate the fiscal pact.  This crucial regulatory tool has become a battleground, with Hollande intent on adding a “growth pact”. France’s new President campaigned and won on the principle that austerity is not the way forward.  If both sides refuse to compromise, the future of the Eurozone must be called into question.

Which of these countries is on the right track economically, and how important are their relationships with Britain?

Germany has enjoyed two years of steady growth. For example, economic minister Rainer Brüderle reported 3.4% growth in 2010 while France’s GDP (or PIB) grew by a far more modest 1.5%.  Unemployment is currently 7% in Germany. In France it’s 9.2%

Regarding overseas trade, France and Germany are direct competitors in 90% of their export products and markets. Trends indicate that France is more likely to lose these contests.  The reasons are not hard to find; according to economist Michel Didier, French companies price their export products an average of 8% higher than comparable German goods. The French SEO attributes these higher product costs to higher labour costs, and the national 35 hours per week working limit. According to the INSEE (National Institute of Statistics and Economic Studies), salaries in France are 2.80 euros per hour higher than those in Germany.

In another contrast, Germany further boosted its comfortable trade surplus in 2011, from 153 billion Euros to 158 billion. Meanwhile France suffers from a structural trade deficit which can only be addressed by raising taxes or cutting spending, and now has a President who is reluctant to do either.

Germany’s trade surplus actually compares favourably with China’s, and the German automotive industry is driving exporting trade with 4.5 million cars sold abroad per annum.  Although Germany may pay a penalty for supporting its struggling EU partners, its economy remains the powerhouse of the Eurozone.

Successes and failures in France and Germany have important consequences for the British economy. As much as Britain is reaching out to the emerging BRICS economies, the fact is that Germany and France rank second and third among this country’s export partners, behind only the United States.  Britain has been trading with Germany for over 700 years and the relationship with France, strengthened by the 1904 entente cordiale, helped to define the course of the 20th century for both countries. The course of the 21st century has not yet been defined, but the austerity debate and the different approaches of France and Germany will help to define the years ahead for the Eurozone.

HAWA TOURE

SOURCES

http://www.lalsace.fr/actualite/2012/02/09/un-excedent-record-pour-l-import-export-allemand

http://www.20minutes.fr/economie/646384-economie-l-economie-allemande-entame-annee-2011-optimisme-

http://www.lepoint.fr/economie/mais-comment-font-donc-les-allemands-02-12-2011-1403031_28.php

http://economy.swo.org.uk/economic-data/balance-of-trade/

http://www.lemonde.fr/politique/article/2012/03/03/merkel-et-des-dirigeants-europeens-sont-ils-ligues-contre-hollande_1651598_823448.html

http://www.leparisien.hxwin.info/election-presidentielle-2012/merkel-et-cameron-ont-pris-contact-avec-hollande-06-05-2012-1987208.php

http://www.melty.fr/angela-merkel-met-en-garde-francois-hollande-actu106421.html

http://www.slate.fr/story/50937/hollande-merkel-complot-europe

http://www.euractiv.fr/editorial-bienvenue-europe-monsieur-hollande-tribune-0

http://www.alterinfo.net/Francois-Hollande-et-l-avenir-de-l-Europe_a75603.html

http://www.telegraph.co.uk/news/worldnews/francois-hollande/9250306/David-Cameron-the-man-in-the-middle-in-Europe.html

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  • Paul Chammings

    This is a very thorough and balanced article. It’s revealing that labor costs in France are significantly higher than in Germany. I doubt that higher costs are accompanied by higher productivity, and I also doubt that the change of leadership in France will address that issue. Very well argued, Hawa.

  • Adele Marinescu

    This is a big worry for me because the things you say are correct, you make a good argument why France might have problems and for Romania this will be potentially very bad. France has made capital investment of maybe 7 billion euro in Romania and is a big stick for us to lean on. The scenario you depict of France and Germany, where there is potential conflict, means turmoil for EU zone and selfishly for Romania it means that one of our biggest partners is walking down the wrong path, because Germany is even more of an investor for us. If the words of President Obama have brought more agreement for France & Germany that could be good or it could make perhaps a more equal fight between Obama & Hollande versus Merkel & other Europeans?

  • Interesting comments on a very interesting article. Adele, you mention that Romania must look at this situation “selfishly”; I don’t think any country can be expected to look at it in any other way. The UK must look at this selfishly and admit that although we’re not in the Eurozone, this region still represents a huge proportion of our import and export market and if the Eurozone sneezes, we will certainly catch the cold. I believe Angela Merkel is the European leader with the most far sighted, realistic approach, and the prospect of her being voted out in 2013 is horrifying to me. That’s just a personal view but it’s deeply held.