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Monday May 12, 2014 MYT 1:55:02 PM
Monday May 12, 2014 MYT 1:56:30 PM
by noah barkin
BERLIN (Reuters) - When leaders need to go out of their way to show the world they are united, it is usually a sign that all is not well.
Ruegen, a windswept island off the Pomeranian coast of Germany where Angela Merkel and Francois Hollande met for a boat tour and stroll on a pier late last week, is about as out of the way as it gets.
On Saturday, at the end of their 20-hour sojourn, the conservative German chancellor and socialist French president unveiled a joint statement on Ukraine and promised to coordinate closely on Europe's future once looming elections to the European Parliament are out of the way.
But their show of total unity, under a drizzling Baltic sky, should fool no one. Beneath the surface, Europe's most important relationship remains awkward and strained, dogged by an economic imbalance between Berlin and Paris that has seemed to widen even as the bloc's financial crisis has eased.
Two contentious Franco-German debates in the past weeks - the wrangling over the future of French trains-to-turbines group Alstom and a row over the strength of the euro currency - have only underscored the divide between the partners on either side of the Rhine.
A decade ago, the French government rallied to prevent German rival Siemens from snaring Alstom's choicest assets when the French firm was on the verge of bankruptcy.
Now it is reduced to pleading with Siemens to buy those same assets, and cajoling Berlin to go along with its dirigiste plan, in order to avert what Paris sees as an even worse fate for the once-proud maker of TGV high-speed trains - an Anglo-Saxon takeover, care of U.S. giant General Electric.
Separate complaints from Paris about the strength of the euro, currently hovering near a 2-1/2 year high of nearly $1.40, are not new.
Since the single currency was launched a decade-and-a-half ago, France has often blamed its economic woes on the euro and the failure of the European Central Bank to rein it in.
But the latest salvoes, from new Prime Minister Manuel Valls and Economy Minister Arnaud Montebourg, have a more desperate ring than usual.
They come at a time when France is struggling mightily to bring its deficit down to an EU-mandated ceiling of 3 percent of gross domestic product (GDP), even after being granted an extra two years to achieve the target.
As it has on Alstom, the German government has pushed back politely but firmly, cautioning French politicians against meddling with the currency and telling the independent ECB how to do its job.
"Berlin and Paris are no longer playing in the same league," says Dominique Moisi, a founder and senior adviser at the Paris-based French Institute for International Relations (Ifri). "This imbalance is at the very heart of the Franco-German malaise."
Beyond the economic divide are two contrasting visions of European integration that could clash once the EU elections are out of the way and a new European Commission is in place.
Ask officials in Berlin what Europe's next big priority should be and they talk about writing tougher budget rules agreed during the height of the euro crisis into EU law through changes to the bloc's Lisbon Treaty.
But in France, there is growing discomfort with what is seen as a German-made rulebook for Europe and strong resistance to treaty changes that risk dividing Hollande's Socialists and further fuelling Marine Le Pen's far-right National Front.
"There's a lot of mutual frustration at the moment," said Gilles Moec, a French economist at Deutsche Bank in London.
"European rules that many in France identify with Germany are coming back to bite the French government," he said, referring to the deficit debate. "At the same time, there is a growing sense in France that Europe's problems can be traced back to German economic policies, its big current account surplus and an ECB that is too German."
The appointment of the next European Commission president may only deepen the anxiety level in Paris. The best-case scenario for Hollande is that Martin Schulz, a German Social Democrat who enjoys a close relationship with Merkel, gets the job.
The worst-case is Jean-Claude Juncker, the former conservative prime minister of Luxembourg and die-hard federalist, who has publicly chastised France for blaming its woes on the euro and warned against granting Paris any "special treatment" on its deficit.
UKRAINE WILD CARD
It is not all doom and gloom between Berlin and Paris. Officials in Merkel's entourage see the appointment of the moderate Socialist Valls in a government reshuffle last month as proof that France is gravitating towards Germany on policy.
In private, their comments are tinged with concern about the pace of change in their western neighbour. But in public, they studiously avoid any comments that might be construed as criticism of Hollande.
"The domestic political situation for Hollande is a difficult one. So external advice isn't helpful," Michael Roth, a German Foreign Ministry official in charge of Franco-German relations, told Reuters.
Moisi of Ifri says the wild card for the relationship is Ukraine, where the two have sung from the same songsheet so far. He holds out hope that the showdown with Russia can accomplish what the euro crisis failed to do - bring Europe and its two big powers closer together.
In remarks at an Alfred Herrhausen Society event in Berlin on Friday, he mused that Russian President Vladimir Putin may one day deserve a place alongside Jean Monnet as a father of European unity.
"The euro crisis may be behind us but the geo-political crisis is right in front of us and it can force Europe to think bigger," he said. "At the end of the day, Europe may come to the realisation that you can't separate energy policy, foreign policy and fiscal policy."
(Reporting by Noah Barkin; Editing by Jon Boyle)
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