The European Union is in search of a new leader. This was an issue I wrote about some weeks ago and matters appear to be coming to a head now.
Germany has a Chancellor-elect to succeed Angela Merkel and, as expected, it is the social democrat Olaf Scholz. Over the decades, Germany has always used its economic strength to assume a leading role in the EU. We have had a succession of chancellors who were recognised as the de facto leaders of the EU.
On its part, France has always privileged itself as being Germany’s closest ally in Europe and prides itself as having had a bilateral agreement with Germany since 1963 (when Germany was still West Germany and the Cold War was raging unabated). That agreement envisaged cooperation on a number of fronts and regular bilateral meetings.
French President Emmanuel Macron would love to take on the gauntlet of being recognised as the EU’s unofficial leader. All French presidents after Charles De Gaulle have had to be content to live in the shadow of whoever was German chancellor at the time.
It must have been for this reason that France reached out to Italy’s Prime Minister Mario Draghi, to hammer out an agreement between the two countries that is said to mirror the agreement France has with Germany. On the other hand, Draghi is also aspiring to become Europe’s de facto leader.
Germany has always used its economic strength to assume a leading role in the EU
It has been a long time since Italy has had a prime minister who, at the same time, is popular in Italy, enjoys an excellent reputation internationally and is most capable. Apart from Mario Monti and Romano Prodi, one would probably need to go back to the 1950s to find one.
The Franco-Italian Agreement talks of things like cooperation on satellites. However, the most crucial aspect of the agreement is about having an appropriate economic policy mix for the eurozone.
This includes the revision of the European Stability and Growth Pact that set very strict limitations to the fiscal policy adopted by the eurozone member states.
These limitations were relaxed to address the crisis created by the coronavirus but they are expected to come back into force at some point.
Both France and Italy do not want this. Draghi and Macron have made comments over the past year on the need to worry less about debt and to invest more in long-term growth for European economies. This is where Germany returns to the picture.
It will be worth seeing what to expect from the incoming German government, a topic which merits more detailed consideration.
However, the new finance minister is expected to advocate the reintroduction of the rules of the European Stability and Growth Pact, with the possible reimposition of a tight fiscal policy. It is important to note that Draghi has publicly stated that a reform of the EU’s fiscal rules, which were in force prior to the pandemic, is inevitable, as those rules have proved themselves to be ineffective since the international financial crisis of around 10 years ago.
In any case, the electorate in most eurozone countries does not want those rules. His argument is that the economic and social impact of the pandemic, the need for economic restructuring caused by the climate crisis, and the massive investments required in digitisation require massive public sector investments.
Maybe the timing of the agreement between France and Italy is purely coincidental in that it happened as the new German government is taking over. Or maybe it is a message that these two countries want to send to the new German government.
We will need to see how things will develop in the short and medium-term. One thing is certain – what is at stake is the unofficial leadership of the EU.