The Franco-German Tandem is Back

The European Union is still struggling to protect the euro currency against new turbulences. Member states agree that the current Stability and Growth Pact needs to be reformed to give the sanctions regime a stronger clout, and that the Union needs an ordered insolvency law. However the devil is in the detail and it has been difficult to conclude a deal among the 16 euro zone and 27 European Union members.

Like in the old days of the Franco-German motor, Germany and France came up with a proposal prior to the EU summit on 28/29 October, agreed during a beach walk at the French-German-Russian summit in Deauville on 18 October 2010. The deal provoked an outcry across the Union.

President Sarkozy convinced Chancellor Merkel not to establish an automatic sanctions regime while both leaders agreed that euro members violating the rule of the euro zone should be deprived of their voting rights. Merkel convinced Sarkozy to go through another round of treaty reforms to make the new rules legally binding. A treaty reform is considered as a sensitive topic after the year long paralysis of the ratification of the Lisbon Treaty.

The proposal triggered immediate criticism among other euro zone members that accused the “directoire” of dominating the Union. Also, the President of the European Central Bank and Chancellor Merkel’s coaltion partner criticized the initiative. Foreign Minister Guido Westerwelle of the Free Democrats gave a press conference on 21 October 2010 in which he argued against the watered down sanctions regime. In the evening he repeated the criticism in a speech at the German Council on Foreign Relations.

When the Brussels summit started on 28 October, analysts were quite sceptical that the tandem would succeed with its proposals. But indeed the Union’s 27 members agreed on a deal along the lines of the Franco-German initiative at the summit. However, the suspension of voting rights (widely regarded as nothing more than Merkel’s bargaining chip) was dropped.

What does the deal look like, and how will it be implemented? “The bumpy road to economic union” by Janis A. Emmaouilidis, a senior analyst and currently working with the European Policy Centre in Brussels, is a very detailed analysis of the summit’s outcome on 28/29 October 2010. While the heads of state and government agreed on a reform of the euro regime, the author argues, there remain many open questions related to the envisaged treaty changes.

Take a look at how Merkel explains her euro policy and at media reactions:

Speech of Chancellor Merkel at the opening of the academic year at the College of Europe in Bruges, 2 November 2010.

“The crisis has deeply shaken us.” (Interview with Angela Merkel, Spiegel Online International, 1 November 2010).

“EU agrees to Merkel’s controversial Euro reforms” (Spiegel Online International, 29 October 2010).

“Merkel at the EU Summit: The Iron Chancellor in the Euro Trap” (Spiegel Online International, 28 October 2010).

“Securing the positive future of the EU” (Speech of Angela Merkel in the German Bundestag ahead of the European Council, 28 October 2010).

“Franco-German bail-out pact divides EU” (Financial Times, 24 October 2010).

“Trichet opposes deal on EU budget rules” (Financial Times, 20 October 2010).

“Spare them the rod” (Charlemagne’s notebook, The Economist, 18 October 2010).

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