Europe’s Pivotal Week

Alexander Privitera

AGI Non-Resident Senior Fellow

Alexander Privitera a Geoeconomics Non-Resident Senior Fellow at AGI. He is a columnist at BRINK news and professor at Marconi University. He was previously Senior Policy Advisor at the European Banking Federation and was the head of European affairs at Commerzbank AG. He focuses primarily on Germany’s European policies and their impact on relations between the United States and Europe. Previously, Mr. Privitera was the Washington-based correspondent for the leading German news channel, N24. As a journalist, over the past two decades he has been posted to Berlin, Bonn, Brussels, and Rome. Mr. Privitera was born in Rome, Italy, and holds a degree in Political Science (International Relations and Economics) from La Sapienza University in Rome.

This was truly a remarkable week for Europe. It opened with Franco-German festivities in Berlin celebrating fifty years of the Elysee treaty. It continued with UK Prime Minister David Cameron pitching his vision for the continent and the need to allow Britons to have a referendum on EU membership in 2017. Finally, the week closed on the snow covered global stage of the World Economic Forum in Davos. It was a fortuitous coincidence that Cameron’s speech and Franco-German celebrations took place in the same week. The two events allowed observers to refocus their attention on the rusty Franco-German relationship and the much-hyped dangers of a so-called “Brexit.”

Cameron’s speech rests on one key assumption. He believes that the nature of the EU is about to change and that his European colleagues have embarked on a journey that will force them to share more sovereignty and strengthen centralized, European institutions. Cameron also believes that a Europe of multiple groups is not a far and distant possibility but rather today’s reality. According to Cameron, “the club we belong to is changing. We can’t ignore this. Change is under way.” Cameron recognizes that those inside the euro area “are likely to need to make some big institutional changes. By the same token, the members of the euro zone should accept that we (i.e. the UK) need to safeguard our interests.”

Cameron is not telling the euro zone members that they should not integrate further, quite the contrary. But he is stating that further integration at the core should not come at the expense of non-euro zone members of the EU. This is a legitimate concern. That is why Cameron resists the term of a Europe of multiple speeds. The prime minister simply refuses to accept that some members (such as the UK) will always be forced to play catch up with the core just because they might choose not to join the euro zone.

According to Cameron, the common European denominator of the EU, a union that will continue to expand and be open to new members, is not the common currency but rather the single market. Britain is merely asking for a firm commitment from its partners that deepening the single market will remain the highest priority of Europe’s efforts in the coming years, even if the euro zone moves towards greater political integration. What the prime minister is essentially asking for is a recalibration of a changing union in order to accommodate older (the UK) and possible future members (Turkey potentially being one of them).

Not surprisingly German Chancellor Angela Merkel’s reaction to Cameron’s words was far from belligerent—quite the opposite in fact. She carefully refused to jump on the bandwagon of those who flatly criticized Cameron’s remarks and instead signaled that she might even agree with much of what he said. In her speech at the World Economic Forum, Merkel, much like the prime minister before her, focused on the need for Europeans to become more competitive in global markets. She stressed that painful structural reforms and growth are two sides of the same coin and need to be pursued with determination.

Furthermore, the chancellor will need the help of the British prime minister to make sure that a more closely integrated euro zone does not succumb to the temptation of protectionism. Merkel made it quite clear that she is prepared to negotiate with Cameron in good faith, as long as the British prime minister does not make outlandish requests.

With his speech Cameron has suggested that he will not veto treaty changes as long as the needs of non-euro zone members and the UK in particular are taken into account. This in itself is not an unreasonable request. Far from being the opening salvo of a confrontation with Europe, Cameron’s speech was a first offer to contribute to shape the new EU that will emerge from the crisis. However, delivering a speech is always the easy part. Given his far from stellar record as an effective negotiator in Brussels, Cameron needs to prove that he can also play a constructive role around the bargaining table. It is far from clear that he will be able to deliver.

One footnote: In light of possible and increasingly likely upcoming negotiations with the U.S. on a comprehensive trade agreement, Merkel will need all the help she can get within Europe to gently, but firmly, convince France to allow a deal with the U.S. to emerge (think of the French obsession with protecting agricultural subsidizes as one the thorniest issues that has effectively prevented a deal to emerge in the past).

This brings us to the state of Franco-German affairs. Of course, the week opened with the pomp and circumstance that big anniversaries require. But for the odd couple that is Angela Merkel and Francois Hollande, the most serious agenda still lies ahead. French President Hollande and Chancellor Merkel no not have much in common, but it is worth remembering that this has rarely been a problem between the French and German leadership over the past fifty years. If Cameron is right in his assessment about the euro zone, Merkel and Hollande will find common ground. During their celebrations in Berlin, the two leaders promised to come up with a common plan for a stronger euro zone by late spring.

The relationship has withstood many tests in previous decades and France and Germany have always found a way to recalibrate it in order to maintain a sense of equilibrium. However, the symmetry is now largely gone. French military assertiveness in Mali cannot paper over the fact that Germany could become too powerful within Europe, with France being locked into the role of a junior partner to its more powerful neighbor. In the coming years, economic might will more easily translate into political clout than in previous decades. In this respect, the euro crisis and the current economic weakness in many European countries has been a wake up call for France. Based on Hollande’s first few months in office, France seems to be torn between the following three options with regard to Europe:

1) France could try to rebalance Germany’s power by forging a closer relationship with Spain and Italy in order to mitigate the German push for painful structural reforms. Given the political uncertainties, particularly in Italy, the success of this path is far from assured. The alliance could easily face severe strains. In the unlikely event of a return to power of the former Italian Prime Minister Silvio Berlusconi, France would feel forced to abandon all illusions about such a Southern counterweight to Berlin and move closer to German positions. This would severely limit Paris’ maneuvering room.

2) France could push for more integration in order to entangle Germany into a stronger common institutional network. This is the path that led to the Maastricht Treaty and the common currency. This time, however, the push towards integration would result in a political union and more openly shared sovereignty. Yet, strengthening the core of Europe could very well happen at the expense of non-euro zone members. France remains a country extremely weary of globalization.

3) Finally, France could try a less ambitious combination of the previous two approaches in order to maintain a fragile status quo. Political union in this case would still put a premium on national governments rather than supranational institutions (such as the Commission and the European Parliament). The European Council would remain the central European decision making body. Significant integration would be confined to areas (such as the banking union) which are less controversial for the French public and don’t openly question France’s national sovereignty.

Which path will Hollande choose? It is hard to say. What is clear however is that once again the character of the European Union, or indeed European Unions, will be shaped by what France, Germany and the UK decide to do. Prime Minister Cameron has promised a referendum in four years. If that really turns out to be the deadline, he has done Europe a favor. It is now up to his European partners, and in particular Germany and France, to come up with a definition of what it means to stress the need of more Europe.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.