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The German election is a disaster for France’s Macron: Here’s why

Germany now certain to reject Macron plan for EU reform

The election in Germany, which has left Merkel looking mortally wounded and has shattered the German consensus of unconditional support for Germany’s Atlanticist foreign policy and for the EU, is a political earthquake.  One person buried under the rubble is France’s new President Emmanuel Macron.

Macron fought the Presidential election in France at a time of growing disillusion in France with the EU.  He nonetheless fought and won the campaign on a counter-intuitive platform of “more Europe”.  This admitted that EU institutions are dysfunctional and that the eurozone is working against French economic interests.  However it argued that the solution to this problem was not to take France out of the eurozone or the EU but to reform the EU institutions and the eurozone in order to rebalance them in France’s national interest.

To this end Macron during the election proposed some very ambitious changes to the way the eurozone and the EU are run, though the details remain vague.  Here is how Reuters summarises them

Macron has said he would make proposals on about 10 issues including strengthening the economic and monetary union, deepening European defence, reinforcing migration policy and strengthening social and fiscal convergence in the bloc.

Of these the most important obviously is “strengthening the economic and monetary union”, with it widely supposed that what Macron is aiming for is the setting up of a central EU finance ministry and treasury department to complement the European Central Bank on the fiscal front.

That of course is not just a policy of “more Europe”.  It is a clearcut expression of an intention to integrate the EU further, making it still more into a ‘super state’.

Macron has always understood that this very ambitious programme requires German support, and since becoming French President he has pursued policies in France intended to gain that support.  Specifically he has sought to impress Germany’s fiscal conservatives by acting to slash France’s budget deficit, and he has also sought to introduce labour market reforms on German lines intended to make the French workforce, like the German workforce, more flexible.

These policies have come at a high political cost in France where Macron’s popularity has plunged at a faster rate than that of any French President since the creation of the Fifth Republic.

Beyond the predictable unpopularity of the labour market reforms with much of the French workforce, there is also expert criticism that Macron’s emphasis on reducing the budget deficit is delaying essential tax reforms which are of greater importance to the French economy.  Moreover some of these same experts are warning that Macron’s emphasis on budget cutting and labour market reform will at least in the short term reduce the economy’s growth rate, and might aggravate a future recession, causing France’s already high level of unemployment to shoot up.

From Macron’s point of view these risks are worthwhile if on the strength of his domestic reforms he can persuade the Germans to agree to the reforms of the EU’s institutions and of the eurozone that he wants.  As pithily explained in an article in Politico written on 17th September 2017 – ie. before the German election

……Macron’s priority is to help Merkel help him. The French president knows his proposals to deepen eurozone integration can only advance if the German public is convinced Merkel is dealing with a serious partner who knows how to manage his own budget.

This entire strategy however rested on the assumption that Merkel would convincingly win the German election on Sunday.

That of course was an assumption that was widely made.  The well nigh universal neoliberal belief across Europe and North America before the German election was that Germany’s economic success and the weight of German history would make it impossible for a party like the AfD to make significant inroads, and that the only issue in the German election was the size of Merkel’s majority.

Macron’s confidence in this outcome is shown by his decision to roll out his proposed reforms of the EU and of the eurozone in a speech on 26th September 2017, two days after what he undoubtedly expected would be Merkel’s triumphant re-election.  Obviously he hoped to catch Merkel on a roll, so that he could move forward quickly with her after the election to agree the reforms to the EU institutions and to the eurozone that he wanted.

This was always a bad strategy.  Like Tsipras of Greece Macron was in my opinion making the mistake of treating Merkel’s emollient language about his ideas as an indicator that she would eventually agree to them.  In reality Merkel has always acted to block all change to the eurozone or to the EU’s institutions which did not serve narrow German interests or which might be controversial with the conservative part of the German electorate which votes for her.

The fundamental issue is that of fiscal transfers from Germany to the other members of the eurozone.  Conservative German opinion has always strongly opposed this, and so as a result has Merkel.

In practice fiscal transfers from Germany to the other members of the eurozone have been taking place covertly for some time in the form of the bailouts of the eurozone’s weaker members (first and foremost Greece) and of the European Central Bank’s bond buying and quantitative easing programme.

These transfers have already been controversial in Germany (the Greek bailouts led directly to the creation of the AfD), but they have been grudgingly accepted as the price to pay for keeping the eurozone going and because they have been carried out in an informal and unacknowledged way.  By contrast the reforms Macron is proposing – involving the creation of an EU finance ministry and a treasury department – threaten to make fiscal transfers not only formal but institutional.  As such conservative opinion in Germany was always in my opinion bound to oppose them, as ultimately Merkel would have done.

The question is now anyway academic because in her present severely weakened state following the election Merkel would be in no position to agree to the sort of reforms Macron is calling for even she wanted to.  The AfD, which was created to oppose the bailouts, would of course vehemently object, as apparently does Merkel’s likely coalition partner the FDP, whose leader Christian Lindner has already poured scorn on Macron’s proposals and made clear that fiscal transfers are for his party a “line in the sand”.

Over and above the objections from the AfD and from the FDP, it beggars belief that many of the conservative members of the CDU and the CSU would now agree to institutionalised fiscal transfers, which would expose them to further challenge by the AfD.

Though Macron will no doubt go ahead and pronounce his proposals tomorrow, there is now no possibility that they will ever be implemented, at least in the form he wants.

Needless to say that calls into question the whole logic of Macron’s reform programme at home, and indeed of his victory in the Presidential election on the promise of “more Europe”.  Since that is not going to happen – at least in the way he wants – it is difficult now to see the point of him.

The French system makes it all but impossible to dethrone a French President during his term and Macron will no doubt continue to the end of his term, though bereft of point or purpose.  However it is now looking extremely unlikely that he will be re-elected.

In the meantime France looks like it must live with yet another failed Presidency coming after those of Sarkozy and Hollande, and a further period of drift.

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