Europe’s Vital French Connection

PARIS – In the debates raging over the future of the European Union and the eurozone, Germany always takes center stage. It has the largest economy, accounting for 28% of eurozone GDP and 25% of the eurozone’s population. It is running a current-account surplus that is now larger than China’s – indeed, the largest in the world in absolute value. And, while weighted majorities can overrule it on some issues, everyone acknowledges that little can be done in the eurozone unless Germany agrees.

But the emphasis on Germany, though justified, should not lead to an underestimation of France’s critical role. France not only accounts for roughly 22% of eurozone GDP and 20% of its population – behind only Germany – but also has the healthiest demography in the eurozone, whereas the German population is projected to decline over the next decade.

At the same time, France’s critical role reflects more than its size. Indeed, in terms of influencing outcomes in Europe, France is as important as Germany, for three reasons.

First, France is an indispensable link between southern and northern Europe at a time of growing economic and financial division between creditors and debtors (a fissure that has begun to assume a cultural dimension). An active France can play a bridging role, leveraging its strong relationship with Germany (a friendship that is a pillar of the EU) and its proximity and cultural affinities to the Mediterranean.

France is “southern” in its current-account deficit, but “northern” in its borrowing costs (slightly above Germany’s), owing partly to inflows of capital fleeing the south, as well as to modest but positive economic growth. Moreover, there is no perceived “re-denomination” risk affecting French assets, given markets’ confidence that France will retain the euro. So, while France faces huge economic challenges, its northern and southern features permit it to play a proactive role in the European project’s survival.

French President François Hollande has already given a rather successful preview of this role, meeting German Chancellor Angela Merkel in Berlin on his first day in office, and, a month later, participating in a high-profile meeting with the Italian and Spanish prime ministers in Rome. Indeed, he took the lead in adding a “growth pact” to the “stability pact” that had been negotiated under Merkel’s leadership.

Second, France, under its new center-left government, must demonstrate that the “European model” of a market economy coupled with strong social solidarity can be reformed and strengthened, rather than abandoned – not just in Europe’s more pragmatic north, but also in its more ideological south. French Socialists will not renounce their traditional commitments; nor should they. But they now have the opportunity to contribute to the European model’s renewal.

Under Hollande, France’s Socialists favor achieving that renewal through a process of social dialogue that convinces rather than imposes, that focuses both on revenue measures and on boosting government efficiency, and that may adopt some of northern Europe’s more successful “flexicurity” policies, which combine greater labor-market flexibility with strong social protection. The reforms should also introduce much greater individual choice, permitting solutions to retirement, education, health, and lifestyle issues that can be more easily tailored to citizens’ specific circumstances and needs.

The government of Hollande and Prime Minister Jean-Marc Ayrault has strong majorities at all executive and legislative levels, giving it a rare opportunity to act. If it can renew the European model at home, it will be able to project that success much more widely, particularly in southern Europe, in turn reinforcing confidence and belief in the EU, particularly among the young generation. The French center-left must lead in conceiving a vision for Europe in which solidarity and equity reinforce long-term economic strength.

Finally, along with the United Kingdom among European countries, France retains more of a global role than Germany has yet acquired. While the United Nations Security Council is outdated in its structure, it still plays a crucial legitimizing role; and France, not Germany, is a member. In many other international organizations as well, France punches above its weight.

Similarly, while France exports much less than Germany outside the EU, many large French enterprises rival Germany’s in global reach and technical know-how. And French is still a global language. In other words, France not only is a link between Europe’s north and south, but also contributes substantially to linking Europe to the rest of the world.

Europe needs a renewed vision and effective policies to realize that vision. France’s Socialist-Green government can play a critical unifying role as Europeans confront their biggest challenge in decades. Its success will be highly consequential – not least for the political debate that will inform the outcome of Germany’s elections in 2013.

Author: Kemal Derviş, a former minister of economy in Turkey, administrator of the United Nations Development Program (UNDP), and vice president of the World Bank, is currently Vice President of the Brookings Institution.

The opinions expressed here are those of the author, not necessarily those of the World Economic Forum. Published in collaboration with Project Syndicate.

Picture: REUTERS/Philippe Wojazer