Germany doubts any candidate will tackle political and economic problems

6 hours ago by: Stefan Wagstyl in Saarbrücken

Peter Strobel always found the French his fussiest customers. Not any more.

The German runs a sausage-making business within a few kilometres of the French border and gets about 40 per cent of sales from France. With the neighbouring economy struggling, he says his cross-border clients are having to make unexpected compromises.

“French people will save last on food. But now they are going for cheaper things,” says Mr Strobel, whose 70-strong Franco-German workforce is confronted daily with glaring cross-border economic disparities. “On the German side, we cannot get enough workers or trainees. On the French side there is unemployment,” he says.

Mr Strobel is a witness to a key German concern about the French presidential election: the divergent economic fortunes of the two countries — and whether anything will change after the vote. As Berlin’s most important political and economic partner heads for its most important election in years, chancellor Angela Merkel’s government is worried about the result and its bearing on Germany’s own international role.

A win for Marine Le Pen, the National Front’s populist leader who seems almost guaranteed to be one of the candidates in France’s run-off in May, remains the most critical challenge for Germany. But even if the centrist candidate Emmanuel Macron wins, as polls suggest is more likely, Berlin is not sure that he can pull France out of its political and economic malaise. The Short View Markets turn against a Le Pen victory in France Prices for contracts linked to rising volatility in the event of a win have fallen

Josef Janning, head of the Berlin office of ECFR, a think-tank, says: “People here are worried, and not just over a possible Le Pen victory. They are worried because they are not sure that even with Macron France’s domestic problems will be solved.”

Berlin’s need for a stronger France is clear. German officials argue that they otherwise lack an equal EU partner capable of tackling problems ranging from migration to unemployment. When Berlin goes it alone, it is often accused of bullying: critics still occasionally make ugly comparisons with Nazi-era dominance. “Especially after Brexit, Germany needs France so it is not portrayed as a hegemon,” says Henrik Enderlein, head of the Delors Institute, a Berlin think-tank.

While France is part of a eurozone-wide recovery, the contrast with Germany strength remains glaring. France runs fiscal deficits bigger than the eurozone’s 3 per cent target, whereas Berlin operates surpluses; on trade, too, France records deficits while Germany accumulates huge surpluses. And while French youth unemployment stands at 24 per cent, Germany’s is at 7 per cent.

In a debate that goes to the heart of eurozone economic policy, Germany — which pulled itself out of economic decline with radical welfare and labour market reforms a decade ago — argues that Paris needs a course of tax cuts and labour deregulation that will lead to recovery. People here are worried, and not just over a possible Le Pen victory. They are worried because they are not sure that even with Macron France’s domestic problems will be solved Josef Janning, ECFR

But Paris has retorted that harsh job-cutting measures must be accompanied by fiscal easing to relieve the pain, and has pressed Berlin to acquiesce in easing eurozone budget rules. It also wants Germany to relax its purse strings to allow for bigger EU-wide investment programmes that could benefit France and other economic laggards.

Ms Merkel has carefully avoided rejecting French pleas too bluntly but has stoutly defended the union’s financial and fiscal rules. Wolfgang Schäuble, her hawkish finance minister, argues that allowing France to increase public debt — already at 96 per cent of gross domestic product — would only create more strains, especially if eurozone interest rates rise from today’s negligible level.

A Macron win should be relatively good news for Germany. The former banker and Socialist economy minister, who has visited Berlin during his campaign, has been so positive about Germany that he was accused in an election debate of wanting to be Ms Merkel’s “deputy chancellor”. He has pledged to launch fiscal and labour reforms immediately if he wins the election, then seek Germany’s co-operation in creating “a new pro-growth environment”.

But German officials remain cautious. They recall past unfulfilled French reform pledges. They also fear that Mr Macron, a political novice with his own recently-created movement behind him, may lack the experience and the organised party backing required to push painful change through the National Assembly.

Things could be easier for Mr Macron if the Social Democrats, Ms Merkel’s junior coalition allies, were to continue their recent resurgence under new leader Martin Schulz and win Germany’s election. They have long pressed for greater fiscal flexibility in the EU. TV debate Macron accuses Le Pen of wanting ‘economic war’ Far-left’s Mélenchon emerges on top as France’s presidential rivals clash

Mr Enderlein, who advises the SPD, says Germany would alter course even if Ms Merkel won because the current policy has “led the EU into a cul-de-sac”.

But Mr Schulz has backed away from one radical option — eurobonds, or instruments issued jointly by eurozone members. And even among SPD voters the conservative view that each household is responsible for its own debt runs deep.

Berlin wants to support Mr Macron for political reasons. He is pro-EU, critical of Russia, and supports the German-led EU sanctions imposed on Moscow over the Ukraine crisis.

However, Ms Merkel’s ruling conservative Christian Democrat/Christian Social bloc will not easily make economic concessions simply as a political favour. Ursula Groden-Kranich, a CDU lawmaker who speaks on France, says: “The Germans made sacrifices to reform their economy. I can’t imagine we would just put in more money without conditions.”