On January 22nd, Angela Merkel and Emmanuel Macron will get together in Aachen to sign a new cooperation Treaty between France and Germany. Both are weakened in their own countries. The French president is facing an unprecedented social crisis since 1968 which, despite the launch of the great national debate, will not disappear before their meeting. The Chancellor has announced she will put an end to her political carrier after the defeat of the coalition she leaded during the last general election. Since that, every local election has seen a backdrop of her party. Their meeting and the Treaty constitute in this context, a winning back operation. They hope, at the eve of the European elections, they will give an answer and a welcomed alternative to the populist movements. But it will be in France the occasion to emphasize the disequilibrium between the two countries and to give an idyllic vision of the “German model”. Is it justified and is it the right direction?
If we trust macroeconomic indicators, the unbalance is clearly in favor of Germany. German growth has been robust until 2018 summer but the first estimations of its GDP for the end of this year and the beginning of 2019 let us forecast a clear slowing. Unemployment level stays under 5%, i.e. twice less than in France. Current accounts balance surplus represents near 8% of the GDP against a 1.5% deficit for its neighbor. Regarding public finance situation, it is flourishing on the other side of the Rhine with 1.7% of the GDP budget surplus in 2018 and the coming back of the public indebtedness under the 60% included in the Maastricht Treaty. In France, public deficit will rebound this year above 3% and public debt will be over 100% of the GDP.
Germany strength lies in having enterprises executives who have understood globalization and who have succeeded, as Paul Valery described it more than a century ago, to lead “a sweet and brutal action, global, continuous, covering all places in the world through every point in Germany to make a maximum of wealth coming back from all the places in the world to every Germany lands”. Paul Valery then adds that this action is not the result of hazard but cleverness. Enterprises have, in the deepest of their culture, the respect of sharing wealth with their employees. It is the market social economy. They are aware of protecting their suppliers, which explains Mittelstand prosperity, which arouses such an admiration in France. German competitiveness is not coming from the permanent denunciation of labor costs and companies do not impose to their supplier ruinous prices or payment delays which are making these ones fragile.
Yet, this economic model carries more and more numerous flaws, which explains the decline of traditional political forces. It has started with social democrat Chancellor Gerhard Schroeder policy and the job market reforms initiated by a former Volkswagen head of human resources, Dr. Hartz. Against what it is believed in France, they did not have as an objective to reduce labor costs but to slow the migration movement which had restarted from the East to the West of the country. Twelve years after the reunification, unemployment rate if the former GRD was still 18% and there was a rebound of migrations toward the prosperous western länders. But East Germans were voting either in favor of the right, the CDU, or in favor of the extreme left. SPD leaders thought their arrival would generate the lost of their majority in many Western regions. The reforms, through the creation of mini-jobs and the hardening of unemployment benefits, have made these migrations much less interesting but they had no consequences on prosperous enterprises and their employees in the Ruhr, the Bade-Wurtemberg or in Bavaria, the birthplaces of German industrial power where they didn't need mini-jobs and where there was full employment. On the opposite, Schroeder made a wrong political calculus because his party, since that, never won again a general election and doesn’t stop to decline. The CICE, decided in France by François Hollande from a wrong vision of German success, has carried similar consequences. To finance it, it was necessary to create a tax shock on households, which has provoked economic stagnation and unemployment rise. The Socialist Party has still not recovered.
But social inequalities in Germany worsened. It is why good employment numbers must be put into perspective. The number of poor workers and of part-time jobs is much higher than in France. The country is also facing a weak demography. Birthrate is around 1.5 against around 2.0 in France. Population ageing is accelerating. The brilliant situation of public finances is partly the consequence of the weakness of social transfers in favor of families.
Germany is also suffering from heavy deficiencies regarding infrastructures and its environment policy, despite its leader declarations, is insufficient. Roads are damaged and after more than ten years of works, a modern Berlin airport is not yet put in service. The country emits three times more CO2 than France and still has a power production relying on coal and lignite. Its efforts in favor of renewable are not enough to guarantee power production when the country has the highest needs. At that time, as a paradox for a country which has announced it will renounce to nuclear, it must turn toward France and is very happy to buy the power produced by our plants.
At last, German financial sector is fragile. The many difficulties Deutsche Bank is confronted with reveal it. If we add to its market value, Dresdner and Commerzbank, their cumulated market capitalization hardly reach BNP Paribas one. The many Sparkasse and the länder banks are in a weak financial situation and have had, in several occasions, to call the State to support them. Our two countries are offering a stunning complementarity. Strong points of one are the weak ones of the other and vice versa. Germany has industrial power, a better employment situation and flourishing public finances. France has modern infrastructures, a strong banking system and a social model less unequal. It is why they must get together and not to give lessons to each other.
Europe is confronted to populism rise and our two countries are not saved. In Aachen, they can make communication through issuing generalities. It is not sure that will make them stronger. They can also prove themselves lucid and recognize their weaknesses which are not unrelated to populism rises and help themselves to remedy to them. That would mean, notably that Germany stops to impose to its partners a budgetary model through which everybody is a loser and that France really cares about the origin of German companies successes and convinces social partners to take inspiration from it instead of throwing billions without any return and reviving social classes war. The president of the Republic has an opportunity because it is scheduled he is bringing together major companies executives in Versailles the day before, on January 21st.