Business

Why Germany and France are at odds over the euro

Protesters wearing masks of Angela Merkel (left) and Nicolas Sarkozy demonstrate outside German government offices with mock giant euro coins, 21 October
Image caption Protesters in Berlin have mocked the German and French leaders' power over the euro

Are Angela Merkel and Nicolas Sarkozy like an old couple who agree on the big things but who bicker over the detail?

Or are the German and French leaders one of those couples who cling together despite their differences but who finally fall out over money when times get difficult?

Put another way: is it a love story with a happy ending, or a soap opera destined to run forever, with deepening crises at the end of each episode?

Both countries have much in common, of course.

They share 450km (278 miles) of border, a lot of it as the commercial waterway that is the Rhine. Their economies are entwined as the largest and second largest in the eurozone.

But they have some different interests in this crisis, too. Germany, as Europe's biggest economy, will pay the biggest bill to solve it.

France's banks are more vulnerable if Greece cannot repay them the money they have been lent.

And they have some differences but also some unities because of their common history.

Bound by the euro

That history is of war, of course - war fought often on French soil (or the mud of the trenches) by invading, and then occupying, German forces.

Out of World War I came the Treaty of Versailles with punishing reparations from Germany sought with a strong voice by France - reparations which many historians believe sowed some of the seeds of World War II.

But from the blood and ashes of that war did come an aching desire for peace, particularly among politicians who had themselves fought and witnessed that destruction.

This desire for a new European way was the driving force of European integration through, first, the European Coal and Steel Community, which then became the European Economic Community and then the European Community, and eventually the European Union, all of them with France and Germany at the core.

Underlying it all was the desire to bind Germany in. The countries which had fought each other in a century of conflicts would become integrated economically with each other, and also - so the founders hoped - politically.

That was easier when growth was relentless and Soviet troops were barely a wall away from Germany.

When communism collapsed, some saw the euro as the way to bind Western Europe together, particularly when its centre of gravity moved eastwards with the unification of Germany.

Chancellor Helmut Kohl of Germany saw the euro as a way to reassure the rest of Europe that the bigger, united Germany remained locked in the West.

As David Marsh, the historian of the euro, put it: "The euro would be the monetary equivalent of the ugly yet necessary military compact between Nato and the Warsaw Pact that supervised East and West Germany after World War II."

And that is one of the reasons today's leaders of France and Germany are so determined to prevent the euro from fracturing.

It remains for them part and parcel of that European Project. If the euro shattered, who knows whether the EU would survive?

And that means the pressure to compromise and reach agreement is very great indeed. It is not just about a currency for them, but about a political vision.

Opposite views

But France and Germany have different histories too. They have different attitudes towards central banks, for example.

The French tendency is to mistrust them as independent entities aloof from political control.

The idea of unelected bankers making economic policy does not sit easily with French democratic sentiment.

In David Marsh's words: "The deeply held French view was that the state, not unelected central bankers, should have ultimate power over a nation's money."

He wrote that President Francois Mitterrand, the French leader who helped engineer the creation of the euro, "told a confidant that his agreeing to the independence of the European Central Bank [ECB] had been a terrible error".

Germany, on the other hand, views an independent central bank as the essential bulwark against inflation. Its very virtue is that it cannot be manipulated by politicians.

This difference matters today because Germany is very wary of giving the ECB more leeway to move from what it sees as the central role of fending off inflation.

Giving the ECB more freedom to lend to countries in difficulty might give it too much flexibility for German inflation-phobes.

France, with its different past, is more relaxed about that. As it is more relaxed about public spending than the orthodox Germans.

New generation

But times are changing and the political context changes with them.

The end of the Soviet Union removed the threat from the East, and so also softened the German perception that it needed to cling to the rest of Western Europe.

The year 1945 is now three generations away, so the memories of devastation and guilt may wane - and waning guilt may mean a waning sense of obligation to other countries in Europe, like Greece.

Chancellor Merkel, a product of communism and of a generation who grew up in bomb sites, may well feel a strong need to save the euro.

Her difficulty is that many of the voters and politicians around her may not share that zeal.