Strained French-German ties and a rudderless EU are losing Europe

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  • Brexit and Catalonia referendums are symptoms of the European Union’s integration mistakes
  • France and Germany are responsible for the EU’s divisions
  • France can proudly stand up for its excellent EU reform proposals

Europe’s growing divisions, amplified by virulent nationalist movements, may not be a conclusive verdict of failure, but they are a disheartening turn of events for people who expected a unifying continent of peace and prosperity. Britain and Spain are reflecting those dangers and showing what’s at stake.

The U.K. is negotiating its multi-billion euro divorce bill with the European Union, while Frankfurt wants to take the business away from the city of London — an estimated 11 percent of Britain’s economy.

Apart from that, German export industries — with their 86.8 billion euro ($102.4 billion) business in the U.K. — want no “special Germany-U.K. Brexit talks.” Their fear is that such discussions could lead to “Rosinenpickerei” (German for raisin picking — their version of cherry picking) of the EU’s single market, where last year they unloaded 68 percent ($970 billion) of German export sales.

Their refrain is “U.K. must pay,” and the caretaker Chancellor Angela Merkel assures them that will happen “if we know what we want.” That gives credence to the idea that the coercion of “hard Brexit” should serve to dissuade other would-be EU “exiters.”

Spain, for its part, is trying to keep 16 percent of its population (7.45 million) and 20 percent of its economy from seceding and becoming the Catalan Republic. It is anybody’s guess how the decision of the central government in Madrid to rescind Catalonia’s autonomy will play out, but it is already estimated that current disorders surrounding the secession attempt could cost Spain up to 1.2 percentage points of its economic growth.

Who will stop the anti-EU wave?

According to Barcelona’s municipal police, nearly 500,000 people took to the streets of Catalonia’s capital last Saturday to protest, with anguished appeals for Europe to help by standing up for its values of freedom and human rights. Barring other developments, as yet unscheduled Catalonian elections should show the way of democratic solutions to Spain’s unity.

Brexit and Catalonia’s quest for independence are the much-feared examples of the way many constituencies may follow. The leavers are castigated as victims of populist politicians rather than people who simply cannot find themselves in a Europe governed by remote and arrogant Brussels bureaucracy, and centralizing elites increasingly disconnected from the “people’s business.”

Italy is another case in point. The celebrated bel paese (beautiful country) has been experiencing for quite some time tendencies of greater regional autonomy, or outright secession, in some of its northern provinces. The regions of Lombardy and Veneto on Sunday conducted autonomy referendums likely to be followed by Piedmont, an emblematic part of Italian unity.

Those referendums are within Italy’s constitutional order, but they are being captured by euroskeptic and openly anti-German political formations, such as Northern League, Forza Italia, Brothers of Italy and the Five Star Movement. Those parties — currently polling at more than 60 percent — are expected to play a major role in next May’s elections, with the regional autonomy, and the opposition to the EU and the euro area at the center of their electoral platforms.

The EU’s east-west fault lines are getting wider as well. Some east European countries are rebelling against German and the EU Commission’s pressures to take migrants and refugees. That is a decision Berlin dumped on them through the EU channels, without any prior consultation, when entire regions and cities in Germany rose up against Merkel’s 2015 open-borders immigration policies. Those countries, members of the Visegrad Group (Poland, Hungary, Czech Republic and Slovakia), are refusing to abide by the “EU values” they claim run against their local cultures, identities and national interests.

Where is a European Germany?

One of that group’s members, the Czech Republic, voted in by a landslide last Saturday a euroskeptic ANO (“Yes” in the Czech language) party, firmly opposed to Germany-dictated immigration policies and the European single currency. True to form, that party has been instantly branded as a bunch of “reactionary populists.” They will most probably be joined in the new government by even more euroskeptic and “populist” constituencies.

And that now brings us to Germany, the crux of the EU disarray. The country’s center-right political leadership came out from September’s elections significantly weakened, internally fractured and seriously threatened by right-wing upstarts thriving on Merkel’s immigration policies.

Until recently triumphantly feted as “the most powerful European leader,” Merkel is now desperately trying to reach out to improbable coalition partners in order to cling to power. But to show who was the new boss, Christian Lindner, the leader of the FDP (one of potential partners), unceremoniously reminded Merkel that she had no right to take any decisions in the name of Germany.

No wonder that the best the Germans could show for their four-party talks last Friday was that they spent five hours together in a “friendly atmosphere.” Some achievement indeed for a company mixing up arch-conservative Bavarians and leftist Greens. Summing up the exploratory talks, a stern Bavarian leader observed that they were still thousands of kilometers apart.

A few hours before those show talks in Berlin, the Germans, and a widely suspected German-friendly EU Commission, took care, during the EU summit in Brussels, of the neophyte’s reformist zeal volunteered by French President Emmanuel Macron. The French media reports sounded like Macron’s excellent and detailed EU and euro area reform proposals had been relegated to that cylindrical file cabinet one usually calls a trash can.

Those proposals were meant to strengthen the euro area, place the EU and the monetary union’s decision making in the space of legitimate democracy to demolish the political terrain currently occupied by euroskeptic right- and left-wing political parties.

I have rarely seen in the German media so much vitriol and total caricature of a thoughtful official initiative taken at the highest level of the French state. And that humiliating treatment was not a media invention.

Departing German Finance Minister Wolfgang Schaeuble, the architect of austerity policies and the Greek tragedy, summed it up in his newspaper article by saying that the EU did not need new layers of bureaucracy that would merely create additional public debt instruments.

The chastised Macron looked and sounded undaunted at the conclusions of the EU summit proceedings last Friday. What he calls his “German friends” have pushed him into a corner and opened him to hostilities of anti-German “souverainistes” (Front National, La France Insoumise, Debout la France and the angry fractions of a deeply wounded Socialist Party) accounting for more than half of the popular vote.

Macron will now have to respond, and the only way he can do that is by adopting a less friendly and cooperative attitude toward his German “friends,” whoever they might be when, and if, Germany gets a new government in the months ahead.

Investment thoughts

A mismanaged European project (economic and political integration) has reached a stage where it needs a bold move toward a stronger and a more democratically structured union to keep the centrifugal forces at bay.

Macron has made proposals that could do that. Germany, however, has summarily dismissed his initiative. As a result, France and Germany have lost credibility to lead the continent to a higher level of integration, mainly because, since the end of Jacques Chirac’s presidency in May 2007, France has allowed itself to be pushed around by an increasingly assertive Germany.

If Macron is unable to quickly change that intra-EU balance of power, he will lose ground to souverainiste and EU-hostile French political forces. That could pave the way to everything the European Union was not supposed to be.

I don’t know whether and to what extent Macron realizes that, but I suspect that Germans, and their followers, are making a very serious mistake by humiliating, underestimating and rudely challenging this highly erudite and skillful politician who seems increasingly attracted to concepts of Gaullist statecraft. Germans should know what that means.

In the middle of all that, the European Central Bank continues to hold the fort, with properly calibrated policies to support the euro area’s strengthening economic growth and impeccable price stability.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.

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