Two events took place Wednesday that highlight the growing divisions between France and Germany and the structural problems underlying the European crisis. They are symptomatic of France's increasing discomfort with its position in Europe and the state of the Franco-German alliance, the pillar of the European Union.
In a speech before economists in Berlin, German Chancellor Angela Merkel said Wednesday that the current value of the euro is "normal" and that exchange rates cannot be subject to political manipulations. According to Merkel, the value of the common currency has to be determined by the free market, even if it jeopardizes the efforts of the European periphery to become more competitive.
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Merkel is the latest of many German officials to reject the idea that weakening the euro would make it more competitive, which is something France recently proposed and that the countries in the eurozone periphery have supported. Merkel acknowledged that the euro's current value threatens the ability of peripheral countries to increase their exports, but she stressed that Germany is not willing to accept a weaker euro.
Also on Wednesday, the French business daily Les Echos revealed a letter by Maurice Taylor Jr., the president of Titan (an American manufacturer of wheels for agricultural vehicles), to French Minister of Industrial Renewal Arnaud Montebourg. In the letter, Taylor explains his reasons for not acquiring a Goodyear factory in northern France.
According to the letter, Titan is rejecting the proposal to acquire the plant because its employees “get paid high wages but only work three hours.” In the letter, Taylor said that French workers "get one hour for breaks and lunch, talk for three and work for three.” Goodyear said in January that it was planning to close its plant in Amiens, which employs 1,173 workers. The economic crisis is hitting the car-making sector in France particularly hard, with companies such as Renault and Peugeot suffering due to plummeting sales in Europe.
Wednesday’s statements touched on two very sensitive issues for France: the competitiveness of the French economy and the rigidity of its labor sector. The socialist government of President Francois Hollande is trying to boost the French economy and improve the competitiveness of its industry. Last week, Paris admitted that France's economic growth this year will be lower than expected, and that the French government likely will not meet its deficit targets. In January, Labor Minister Michel Sapin sparked controversy when he said that France "is bankrupt," a statement that French authorities later denied.
Hollande is trying to address these problems, but he’s operating within increasingly strict limits. At the domestic level, he is seeking to implement structural reforms without creating social unrest. At the European level, he is attempting to modify Germany’s strategy to deal with the economic crisis without causing a political break with Berlin. It is extremely difficult for Hollande to solve both dilemmas in the current context.
The very existence of the eurozone, which brings together 17 countries with different levels of competitiveness and economic development, and the German leadership in Europe, which emphasizes fiscal discipline and the fight against inflation over economic growth, severely limits France's available alternatives. In recent months, Germany has rejected most of the Paris' proposals, including devaluing the euro and creating eurobonds. As the crisis escalates, it becomes increasingly clear that Berlin and Paris have different views on how to react to the economic downturn in Europe.
During the first decade of the euro, Paris and Berlin prioritized their strategic alliance over their political and economic differences. But the European crisis is forcing France to reconsider its position in Europe and its relationship with Germany. As a result, it is now confronting structural issues — such as the competitiveness of its economy — that were neglected during the years of economic prosperity.
France and Germany are interested in preserving their partnership, but the deepening of the crisis is making the situation in Paris increasingly intolerable. Many of Europe's financial problems can be solved, but at political costs that eurozone members are likely not willing to bear. Paris and Berlin are aware that it will be extremely difficult to weather the crisis without rethinking the terms of their alliance. The future of the European Union depends on this renegotiation.