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Is Europe Becoming Unhinged?

Could this time be different?

Speculation, especially in the English language press, about the break up of the Franco-German alliance at the heart of the European Union crops up every time Europe comes under stress. (Economist and FT readers take note: British papers in particular love to speculate on this outcome, as a Franco-German breakup is the only way that the UK could hope to reinsert itself as a decisive factor in European politics.) But so far Paris and Berlin have always come back to the view that they have more to gain by compromising and maintaining the strength of their bond. The realization by Charles de Gaulle and Konrad Adenauer that Franco-German partnership was the only way that either of these countries could maintain a significant global profile after World War II is the basis of modern Europe.

But the euro crisis is significantly deeper than other European problems over the past 30 years. The question is whether it is deep enough to drive a wedge between the two leading powers of Europe.

There are some signs that the two countries are being pulled apart. The French are thinking about an alliance with Spain and Italy that would hold European monetary and fiscal policy on a course favorable to debtor countries. The Germans, on the other hand, are discovering new points of contact with other creditor countries, including the UK and the Netherlands. Germany is also more interested in helping countries like Poland develop rather than in bailing out faraway places like Cyprus and Greece.

As we’ve noted in earlier posts, the fight over the euro is basically a fight over the political economy of Europe. The Germans want a neutral, stable currency as a transparent unit of account and reliable store of value; the French want the currency to be an instrument of policy to be wielded by political authorities as they address issues ranging from industrial policy to social justice and income distribution. In all the battles over what to do about the failure of euro 1.o, each side has pursued a consistent strategy aimed at imposing its vision on the future of Europe as a whole — and, so far, neither side has won a decisive victory.

So far, these tensions have slowed the progress of Franco-German policy coordination but they have not yet pulled the two countries completely apart. Cooperation between Paris and Berlin is deeply institutionalized and has penetrated the political culture of both capitals to a degree that foreigners often fail to perceive.

The strength of the bond between France and Germany may be the most important single thing to watch as the European story unfolds. Only if these two countries move in decisively different directions can we speak about a fundamental crisis for the EU. We are not there yet and both France and Germany will work very hard to avoid such a split.

On the negative side, the mix of a continuing commitment to bilateral cooperation and basic differences in their strategic goals makes for a frustrating European policy environment: fudge after fudge after fudge. The cost of Europe’s prolonged failure to act decisively in the crisis is growing, and it isn’t just measured in lost production, unemployment and growing fiscal trouble at the national level. It is measured in the rise of neo-Nazi movements, the return of ugly forms of national chauvinism and pressure for the breakup of countries like Belgium, the UK and Spain.

But on the positive side, while France and Germany are trying to work their differences out, the motor that has powered European integration since the 1950s still works. As European policy makers wrestle with issues ranging from the EU budget to the Greek bailout to a new fiscal treaty and a European banking authority, we will see whether this time, as so often in the past, the French and the Germans manage to shoehorn their competing visions into a program for Europe.

If they fail, that would be the end of the post Second World War European system as we have known it and the beginning of something quite new.

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