A New Élysée Treaty

The Berlin-Paris Axis

At their meeting in Paris, on the occasion of the 55^th anniversary of the signing of the Élysée Treaty on January 22, 1963, Chancellor Angela Merkel and President Emmanuel Macron announced the drafting of a new bilateral treaty aimed at "deepening" cooperation between the two countries and "strengthening" the EU.[1] Berlin and Paris would like their alliance to be regarded as a "motor" for further European integration. In a joint statement published Sunday, they reaffirmed their determination to strengthen bilateral cooperation aimed at "a prosperous and competitive Europe, more sovereign, united and democratic." At their meeting on Friday, both sides agreed "to define common positions on all key European and international issues."[2] The leaders called for deepening their cooperation, to not only include finance, social and economic policies, but also "foreign, defense, security and development policies" as well as the "fight against terrorism" and "crisis management."[3] This would enhance the Berlin-Paris axis as a central power structure of the euro zone and impede the formation of significant intra-European alliances directed against it.

Complete Harmonization

The new Élysée Treaty is to be signed later this year. Paris and Berlin are obviously accelerating their bilateral alliance to dispel possible resistance from within the EU. The German-French treaty should serve as an informal base for reforming the euro zone. In a resolution passed by the parliaments of both countries, the French and German government were called upon to harmonize almost the "complete range of policy issues" - including social and fiscal policies, corporate law, defense and foreign policies. To better promote "Europe," Paris and Berlin are planning to organize "citizens’ consultations on the future of Europe" beginning this year. The new treaty will be drafted and coordinated by Germany's acting-Finance Minster, Peter Altmaier, a confident of Chancellor Merkel and France's Minster for Economy and Finance, Bruno Le Maire. By June, at the latest, they are planning to reach an agreement on the most contentious topics of discussion related to offsetting the economic imbalances within the euro zone, the two top politicians told the press.[4] It will include the "harmonization of corporate taxes" as well as "joint proposals to prevent a new banking crisis." France's finance minister publicly insisted on the continuation of at least the discussion of his government’s proposal to establish a euro zone budget as well as a finance ministry. However, no further mention was made of euro bonds, originally proposed by Paris.

"Contained but Concealed"

In order not to publicly snub Paris, Berlin is pretending to be open to discussion. "The point on the euro zone budget is included in our exploratory paper," Altmeier is quoted saying - "but merely concealed!" Media abroad are nourishing hopes that Germany's ruling elite may at least be prepared to consider an EU mechanism for financially offsetting Germany's currently extremely high trade surpluses. According to reports in US media, these results of the exploratory talks are a "quantum leap." compared to the failed three-way coalition deal with the Greens and the FDP - which vehemently opposes transfers across the currency union.[5] The German austerity dictate, which has unilaterally imposed a stringent austerity course on the EU, thereby cementing the socio-economic dichotomy of the currency zone into a German hub and a southern European periphery, would be perpetuated. Further disintegration of the battered euro monetary area would be predictable.

Hope and Convergence

The current SPD - CDU/CSU coalition paper, on the other hand, suggests an about face, the US Bloomberg news site announces with hope.[6] The paper speaks of the need to emphasize budgetary resources for economic stabilization in the euro zone. Not only the structural reforms, which Berlin has been calling for over the past few years, but also social convergence are named as objectives. It also envisages the possibility of setting up "an investment budget for the euro zone." The competence of the European Parliament could be expanded to cover managing these funds, as well as taking control of a, yet to be created, "European Monetary Fund." France's President, Emmanuel Macron has formulated an ambitious reform program that calls for a euro budget, the introduction of a European Finance Transaction Tax (FTT) and the harmonization of corporate taxes, to end this domain's "race to the bottom." All these points have now - at least in part - been addressed in the SPD - CDU/CSU exploratory paper.

Concessions to Maximize Exports

The export-oriented German economic structure, particularly Germany's current extremely high trade surplus, which forms the economic basis of German political domination over the euro zone, is the reason for debate in Berlin as well. In mid-January, the euro zone finance ministers again warned Germany to take measures to reduce Germany's excessive export surplus, which last year reached a new all-time high of the equivalence of US $287 billion.[7] Without the euro - which is structurally undervalued in comparison to Germany's economic clout - Germany would not have been able to accumulate such a high trade surplus. Therefore, Berlin has an existential interest in continuing to maintain the euro zone - to maximize its exports. It could become necessary to offset the consequences of Germany's trade surpluses - the debt accumulation of other EU nations - with fiscal transfers to prevent, at least in the intermediate term, the disintegration of the monetary zone. After all, with the onset of the discussion about fiscal transfers within the euro zone, Germany can insure the continuation of its predominance in that monetary area and transform this into hegemony, which, with moderate concessions, could also maintain the allegiance of the peripheral countries.

As Low as Possible

Chancellor Merkel, has made it clear that "limited" additional funding to aid investment in euro-area countries that received bailouts during the debt crisis could be envisioned.[8] She refused to state her position on France's proposal for establishing a euro minister of finances. Berlin will seek to keep the price of maintaining the euro zone as low as possible.

[1] Neuer Élysée-Vertrag soll noch dieses Jahr kommen. handelsblatt.com 22.01.2018.

[2] Merkel, Macron to deepen Franco-German cooperation, strengthen EU. uk.reuters.com 21.01.2018.

[3] Deutschland und Frankreich wollen neuen Schub für Europa. reuters.de 21.01.2018.

[4] Was Berlin und Paris miteinander vorhaben. sueddeutsche.de 19.01.2018.

[5], [6] Ferdinando Giuliano: German Support Unlocks Euro-Zone Change. bloomberg.com 18.01.2018.

[7] EU finance ministers to call on Germany to boost wages, investment. reuters.com 16.01.2018.

[8] Arne Delfs: Germany Moves to Speed Up Reply to Macron on Euro Proposals. bloomberg.com 17.01.2018.