Future of Europe in hands of French and German voters

What difference would it make if Martin Schulz were to become German chancellor? How would a President Emmanuel Macron change France? These are two of the most commonly asked questions about European politics. I find them both rather boring. A much more interesting one is this: what effect would the two, if both elected, have on the EU in general and the euro zone in particular?

The fall from grace of François Fillon, the candidate of the French Republicans, leaves Mr Macron as the only contender in the French presidential election who can truly claim not to be an extremist. That alone makes him the favourite.

Events will, of course, intrude between now and the first round of the election on April 23rd and the second on May 7th. Marine Le Pen remains a serious and formidable contender. Do not underestimate the leader of the National Front and do not rely too much on the polls.

Dead heat

In Germany, the race towards the election on September 24th is a dead heat. Even the opinion polls do not tell us much: the two largest parties – Angela Merkel’s CDU/CSU and Martin Schulz’s SPD – are neck and neck. They also produce no conclusive answer on two most likely post-electoral alliances: another grand coalition between CDU/CSU and the SPD, or a coalition between the SPD, the Left party and the Greens, an option known in Germany as r2g (red-red-green) after the party colours.

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So what should we expect if both men win?

Mr Schulz and Mr Macron are sentimentally and intellectually pro-European, more so than any leaders since the days of Helmut Kohl and François Mitterrand. Mr Schulz is politically the more experienced. I get the sense Mr Macron may just get blown away by the first crisis that comes along. I hope I am wrong because the alternatives in France are dire.

On domestic politics, the room for manoeuvre will be narrow for both. Any German chancellor will be constrained by coalition, by the majorities in the Bundestag and the Bundesrat, and by German constitutional law. Even an r2g coalition would respect the balanced budget rule: never underestimate the capacity of the SPD to disappoint those who support it.

Mr Macron’s constraints will be even tighter. He has a new political movement behind him but no members of parliament. He might see off Mr Fillon in the first round of the election. But he will need Mr Fillon’s party, or the Socialists, to be able to govern.

So the impact of each candidate on domestic policy will be limited – but together they could make a difference for the EU.

Leadership

Historically, the momentum for European integration was based on Franco-German co-operation. Other countries never had quite the same effect. Spain cannot take this role because it is too preoccupied with itself. Italy cannot do it because of its fragile economy. The UK is leaving the EU and the Polish government is behaving as though it has. Leadership, if it comes at all, will come from France or Germany.

What would be the nature of a new pro-European Franco-German alliance?

The priority for both has to be fixing the euro zone. Its problems remain unresolved. The economic recovery is real but masks divergence between north and south. Someone will need to make convergence happen and the only players with a remote chance of success are the next German chancellor and French president.

Fixing the euro zone matters both in its own right and because its continued weakness undermines all other aspects of integration. There is no point supplementing an incomplete euro zone with a dysfunctional security union.

Failing to resolve the euro zone crisis has been one of the great historic errors of postwar Europe – the legacy of Angela Merkel, Nicolas Sarkozy, François Hollande and all those who played a role in this policy disaster.

It is one of the main causes of the rise of populism. It has left all of us vulnerable to additional shocks. The withdrawal of a single country would unleash a financial crisis of unimaginable proportions.

To the next generation falls the job of cleaning up the mess from a decade spent trying to muddle through. The concrete task is no different to that of the past. They will need mechanisms to forge economic convergence. They will have to create genuine banking union. There will otherwise be no end to permanent banking crises. This in turn will require tax-raising capacity and the ability to issue joint debt. All of this will necessitate new legislation, perhaps even treaty change.

Mr Schulz and Mr Macron will not achieve miracles but the future of European integration will depend on whether they are ready to make a start. And the speed of travel is less important than the direction.

– Copyright The Financial Times Limited 2017