Intereconomics 2017 | 4
Macron a Game Changer for
The election of the youthful Emmanuel Macron as President of France has re-awakened
the hope that the European Union could ﬁ nally start moving forward again. Reforming the
euro area seems an obvious ﬁ rst step. However, this might be more difﬁ cult than com-
monly anticipated. Much has been made of the prospect of a new era of Franco-German
leadership. However, the German part of it is unlikely to change. Moreover, France and
Germany can only lead if other member states are prepared to follow. This might be much
less likely than widely assumed.
The ﬁ rst key element is thus that one half of the Franco-German “couple” has not
changed. Germany is likely to retain its chancellor after the elections later this year. More-
over, Germany’s interests and its perception of the EU’s problems have not changed.
This Franco-German discord was already visible a quarter of a century ago, when the
foundations for the euro were laid in the Maastricht Treaty. At the time, the main problem
was how to tame inﬂ ation. The German solution, supported by the consensus of the aca-
demic research, was to create an independent central bank and task it with maintaining
price stability. France was able to agree to this approach because it would get a seat on
the board of the proposed European Central Bank (ECB). To ensure that unstable public
ﬁ nance would not create pressure on the ECB to conduct lax monetary policy, the Maas-
tricht Treaty also contained limits on deﬁ cits and debts, which were later enshrined in the
Stability and Growth Pact (SGP). These ﬁ scal rules appeared, at the time, to be of lim-
ited relevance for France, since French ﬁ scal policy had traditionally been quite prudent.
Moreover, the enforcement of the SGP was ultimately left to political decisions.
Today, the key issue is no longer high inﬂ ation, but rather ﬁ nancial stability. This is mostly
due to high levels of debt, meanwhile the ECB is ﬁ ghting to prevent inﬂ ation from remain-
ing too low. But there is no consensus on how best to maintain ﬁ nancial stability and
whether low inﬂ ation is really a problem. Germany, as a creditor, does not regard low
inﬂ ation as a major concern, and it would like to create a framework under which the
debtors will service their debt.
It is thus not a surprise that Germany has remained the champion of a rules-based sys-
tem which emphasises the need to keep deﬁ cits low and one’s house in order. France, on
the other hand, has different interests, and it sees the need for the state to have its hands
free to intervene when needed, which sometimes might justify deﬁ cits and bailouts in
order to prevent crisis. Moreover, France does not have the same creditor position as
Germany, and its relatively weak economy has resulted in continuing deﬁ cits and rising
public debt levels. Consequently, it is now much more difﬁ cult to ﬁ nd a grand bargain
between these two core nations of the EU.
That being said, both countries realise that maintaining ﬁ nancial stability is the primary
challenge facing the euro area. There is no longer any need for emergency action, as
ﬁ nancial market tensions have subsided, while the euro area economy is expanding as
employment returns to its pre-crisis peak. However, this calm might be only temporary,
due to the large bond-buying programme of the ECB. France, with its large banks, should
understand the urgent need to complete the banking union. Some Franco-German coop-
eration should thus be possible in this area.
Actually, the main impediment to the banking union is likely to lie elsewhere. The miss-
ing element of the banking union is deposit insurance, which remains a purely national