Europe’s big two: The Nico and Angela show

When Germans look at Europe’s periphery they see economies that partied when they should have been sobering up. After unification Germany put itself through economic boot camp. The unions agreed to lower pay rises.  The government cut benefits, raised charges and made it harder for workers to claim disability allowances. Between 1994 and 2009 the country’s unit labour costs fell by about 20% against the rest of the EU. But the adjustment was a hard slog. Jobs went abroad, where labour was cheaper, and unemployment rose to a peak of 12.1% in 2005. That same year the Social Democrat-led government of Gerhard Schröder paid the price at the polls, bringing Ms Merkel to power.

The most likely answer to that question today is compromise. Germany is not about to walk away from Europe, nor to let the euro fail. But Germany’s price will be a rescue in which it will be explicitly seeking to put its own interests above all others. What does that mean for France? In French eyes today’s EU suffers from three flaws. First, the commission and the ECB have too much scope to act independently of governments. Second, the British-backed policy of enlargement has gradually changed the character of the union, making it harder for French views to prevail and over-emphasising open markets. And third, taking Mr Kundnani’s German question, France needs to renew its deal with Germany.

The euro crisis offers a tantalizing chance to do so. Because the euro will need more and better governance, France has an opportunity to sideline the commission by creating new institutions controlled by governments. If decisions can be taken by the 17 members of the euro zone, rather than the 27 of the EU, then the restored Franco-German duo might take charge.

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