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Franco-German Split Gives UK Rare Opportunity

The ironclad partnership between France and Germany has been the most frustrating geopolitical reality for Britain since the 1950s.  For hundreds of years, the British worked to maintain a European balance of power which in effect gave them the ability to tip the balance for or against any other power.

The Franco-German entente ended that; the two strongest powers in western Europe banded together, marginalizing the UK as Germany and France built the EU to suit themselves.

Now the crisis over the euro has turned into a struggle for the mastery of Europe between France and Germany.  As I wrote in the Wall Street Journal yesterday, the fundamental question is whether Germany will impose its model of governance (strict central banking in the service of hard money and low inflation) on the eurozone, or whether the softer, more politically sensitive and inflation tolerant Latin model will prevail.

Another story in the Journal this morning has an eye-popping possibility: that Germany and Britain could be cooking up a deal behind France’s back that would throw British support to German plans for the Continent in exchange for German acceptance of key UK demands, safeguarding London’s financial industry, giving the UK some opt outs from European regulations it doesn’t like plus some budget relief, and ensuring that non-euro states won’t be frozen out of future EU plans.

The interesting thing is that none of these demands, vital as they are to the British, pose insurmountable obstacles to the Germans.  The French demand that the ECB become a lender of last resort for troubled European governments and banks, on the other hand, is impossible for the Germans to accept.  Between the two, the rational German choice may well be to cut a side deal with the British.

The conventional view is that Britain and Germany have irreconcilable views on what Europe should look like — and that the British are so suspicious of German power that they will never agree to a “German Europe”.  This is by and large true; the Germans do want a strong political union to emerge in Europe, and the British instinctively fight that idea.  This article by the noted scholar and observer Timothy Garton Ash in the Los Angeles Times does a good job of showing how deep the gaps between the two countries are.

But Germans can be very pragmatic; offering substantial concessions to Britain complicates but does not destroy the realization of Germany’s vision.  Letting France write the economic laws of the eurozone turns a German dream of European integration into a nightmare of inflation and disorder — at least as many Germans see things.

It won’t be that easy.  Germany still needs treaty changes to create the kind of economic union among the eurozone countries it wants; France and its allies can block those treaties.  But Germany has some powerful cards in its hands: it can offer or withhold the financial aid that the troubled Club Med economies urgently need.  Since the French banking system cannot withstand a Club Med meltdown, Germany has a lot of leverage with France also.

In the past, both Germany and France have toyed with Britain from time to time as a way to gain leverage against one another, but at the end of the day, the British have never been able to drive a wedge between the two main drivers of the EU.  There’s still a good chance that Germany is using Britain to put pressure on France and will drop the UK like a hot bratwurst if France caves — but the ECB dispute is so deep that France may not cave.

For investors, and for spectators trying to figure out if the European mess is going to trigger Global Meltdown Round Two, the message is grim.  The Germans are playing hardball, which means no quick solution to the euro mess is in sight.

For Britain, however, this is a rare opportunity.  Breaking the Franco-German grip on the EU system would be the biggest victory for Britain in a very long time and it would open a new and interesting era in European politics.  The Cameron government should do its best to reach an agreement with Germany; opportunities like this do not come up every week and if ever there was a time for a British prime minister to think clearly, creatively and boldly, this is it.

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  • Neville

    The only thing wrong with this rosy scenario is that the French would rather take the entire European banking system down with them than accept this kind of catastrophic defeat, especially to the British.

    De Gaulle showed his willingness to do something similar in 1965, when he attacked the dollar (Time magazine said “Perhaps never before had a chief of state launched such an open assault on the monetary power of a friendly nation”).

    The image the French wish to preserve of their relative position in Europe stands in their priorities well above any risk of economic chaos in Europe, especially if that chaos would also hit Britain and Germany hard.

  • Eurydice

    How fascinating. If one connects the dots, the US can skip right over France. And we can watch these new layers of political influence being carved out in real time. Will France’s dream of global influence be reduced down to being the shepherd of Club Med?

  • Andrew Allison

    Regardless of whether Britain succeeds in weakening the French-German axis, it seems clear that France is faced with the choice of playing second fiddle in the Eurozone or leading the Club Med menagerie, er orchestra.

  • Luke Lea

    @ – “ensuring that non-euro states won’t be frozen out of future EU plans.” Could Meade please elaborate? Is this in reference to other British Commonwealth nations? I presume it isn’t Turkey.

    • Walter Russell Mead

      Only 17 member states of the EU use the euro. Many others do not.

  • Jacksonian Libertarian

    The British wisely avoided joining the Euro, and they will wisely avoid being damaged by the fall of the Euro. In fact they will likely experience a capital influx by those seeking to protect their capital from the Euro’s demise. I don’t see them helping Germany with anything beyond moral support, and certainly not with closer financial integration with the slow motion Euro train wreck. With so many leadership changes in Europe, Merkel is looking more and more like a lame duck, working against the German voters’ wishes, which are clearly against bailing out the PIIGS.
    The European political elites which cobbled the EU together with Duct tape and Bailing wire, forcing things together with however much red tape it took (thousands upon thousands of pages), are now facing a stress test of their contraption. It will not survive.

  • PaulH

    So, if I wll understand, Britain want take the place of France as EU driver but…without being an Euro player.
    I’m not sure the rest of the Europlayers (starting with Germany) will accept that.
    In an other hand, for historical and political reasons, even being very pragmatic (or for being it!), I am not sure that Germany has the willing to kick France out.

  • Kris

    Might you be overstating this? All I get from the article is that the UK would accede to Germany’s plans in exchange for a guaranteed opt-out. My headline would be: “A Separate Peace.”

  • Ralp Brandt

    Political leaders can play clever chess with each other, but whatever the agreements, the proof of the pudding will be in the unemployment fallouts. There is a necessary enlightenment in process in which the voters are being made aware of the reality of where we have collectively got to and why debt accumulation has reached its mathematical limits. Now the policy options and their consequences are being clarified. A slow but overdue and necessary levitation of public awareness. The voters will translate national power plays into employment consequences and these can not be swallowed if perceived as clearly unbalanced.

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