Jun 20, 2018 | 18:32 GMT

4 mins read

EU: France and Germany Chart a Middle Way on EU Reforms

The Big Picture

In its annual and third-quarter forecasts, Stratfor said 2018 would be the year that the European Union considered its future. It also said Germany would be willing to reach compromises with France, but only if Paris toned down or shelved some of its proposals. The joint list of proposals for EU reform that Germany and France have just released confirms that analysis.

For France and Germany, hammering out an agreement on Europe's future is never an easy task, especially when both have such strong ideas about how to reform the 28-member bloc. On June 19, German Chancellor Angela Merkel and French President Emmanuel Macron issued their Meseberg Declaration, a joint document proposing measures to reform the bloc that will go before the European Council on June 28 and 29. The document represents a compromise between Paris' desire for deep, structural reforms and Berlin's cautious approach to the bloc.

The paragraphs on foreign policy carry an overt French influence, as they call for more European coordination on defense. The proposals are part of a French push to increase the European Union’s "strategic autonomy" at a time of increasing geopolitical competition around the world. The Meseberg Declaration also states that EU leaders must consider using majority voting instead of unanimity when making foreign policy decisions so as to increase the effectiveness of EU policymaking. But moving away from unanimity itself requires unanimity, and many member states do not wish to forego their veto power on issues of great sensitivity, such as imposing sanctions on other countries or authorizing military operations abroad. 

The declaration also calls for increased European support for migrants' countries of origin and transit, to improve the protection of the bloc's external borders — such as by giving more resources to the EU border police, Frontex — and to create a common European asylum system. Moreover, the document outlines measures to prevent asylum seekers who have already been registered in an EU country from moving to other countries in the bloc. In other words, an asylum seeker who has already been registered in, for example, Italy cannot move to Germany. The clause is designed to aid Merkel amid heightened domestic pressure to reduce the number of asylum seekers arriving in Germany. Countries along the union's external borders, such as Italy, Spain and Greece, want to redesign the Dublin system, according to which the country where a migrant first enters the union is responsible for him or her. The Meseberg Declaration, however, has little to say about reforming this system.

The most notable proposal for the eurozone includes the creation of a budget for the currency area to promote competitiveness, convergence and stabilization. While this is a French request, the declaration says nothing about just how big this budget could be, which suggests that Germany will push to keep it as small as possible. At the same time, the document states that the eurozone budget will be part of a bigger EU multi-annual budget, which represents a concession by France, as Paris’ original plan was to create a separate budget for the eurozone.

The Meseberg Declaration further notes that France and Germany will seek greater convergence between their respective corporate taxes and push for a Common Corporate Tax Base (CCTB) at the European level. But while Paris and Berlin can coordinate their own tax policies, they will struggle to impose a CCTB at the European level, as low-tax countries such as Ireland or Luxembourg will likely oppose the plan. France and Germany have also requested an agreement on taxing large digital firms by the end of the year, but this is also an issue that will create frictions with low-tax countries. Considering that tax issues are decided by unanimity in the union, Franco-German cooperation alone will not suffice to introduce changes at the European level.

Finally, the wording is cautious on the issue of financial risk sharing in the eurozone. The document calls for a stronger European Stability Mechanism, the bloc’s permanent bailout fund, but stresses that any loans to member states should be linked to conditions. It also states that the introduction of a common backstop for eurozone banks should only occur after financial risk is reduced. The Meseberg Declaration is also notable for what it doesn’t say on the topic, as there is no mention of creating a common deposit insurance for eurozone banks. These omissions and vague wording are meant to appease northern European countries, which are wary of increasing financial risk sharing in the union.

The Meseberg Declaration strives to chart a middle course between France and Germany’s positions, but the rest of the European Union's members must still debate their proposals. And considering the divisions within the bloc, even a Franco-German compromise does not necessarily guarantee that all their proposals will be implemented.

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