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Repeats Story Initially Transmitted at 07:15 GMT Sep 18/03:15 EST Sep 18
--Efforts Toward Franco-German 'Grand Bargain' Stumble on Different Visions
By Jack Duffy
PARIS (MNI) - Hopes that Germany's federal election on Sunday will pave the
way for a "grand bargain" between Paris and Berlin that will transform the
Eurozone are running high -- too high according to officials and analysts in
both countries, MNI understands.
Angela Merkel is expected to sweep to a fourth term as chancellor on Sunday
and one of the first tests of her new government will be to decide how much
ground to concede to French President Emmanuel Macron in his ambitious push for
a more integrated Eurozone.
French government sources confirmed to MNI that Macron will unveil a
detailed "road map" of his proposals next week, possibly on Tuesday.
Merkel has paid lip service Macron's ideas during the campaign, saying "Why
not?" when asked about proposals for a Eurozone budget and finance minister. The
detailed post-election debate is expected to be much more difficult, officials
"There is a wait-and-see attitude" with the German side, Laurence Boone, a
former top economic advisor to President Francois Hollande, told MNI in an
exclusive interview. "They want to see progress on domestic reforms first."
Paris and Berlin also have very different visions of a Eurozone budget and
finance minister would look like, officials say. Where Macron wants a finance
minister with broad powers to drive growth and a huge budget worth "several
percentage points" of GDP, Germany prefers an enforcer with modest resources who
would do a better job of making member states comply with fiscal rules than the
European Commission has done.
"Intellectually the two sides remain miles apart," said Christian Odendahl,
the Berlin-based chief economist au Centre for European Reform, a think tank.
Progress toward a compromise will be closely watched both on Wall Street,
where a "transformative" reform package is seen attracting billions in capital
flows into the euro, and by the European Central Bank, which views a more
integrated Eurozone as being better protected from external shocks.
"It's important and necessary," one senior ECB official told MNI. "And
conditions have never been more favourable."
With the Eurozone economy growing at its fastest pace since the debt crisis
and France and Germany's election cycles aligned this year for the first time in
more than a decade, now is a key moment to make progress, the official said.
Macron has started tackling the reforms necessary to convince Germany that
France is now a credible partner, with a long-awaited liberalization of French
labour market to be implemented this week. He has also promised to overhaul
pensions and unemployment benefits, the two other key areas where Germany wants
to see reform progress.
"We need a bit of a 'wow' effect," to convince Germany that France is
serious, said Boone, who is now chief economist at the French insurer AXA. "If
Macron can tick those other two boxes I think we could get that wow effect."
But post-election politics in Germany could also make a Franco-German
compromise more difficult.
A Merkel win on Sunday will be followed by a month or more of talks to
build a new governing coalition. If Merkel's CDU/CSU bloc opts to join forces
with the pro-business Free Democratic Party (FDP), her latitude on Europe could
be severely limited. The FDP leader, Christian Lindner, 38, has been called the
"anti-Macron" as he has aggressively dismissed the French president's Eurozone
proposals and argued that Greece should leave the Eurozone.
"You will not have on September 25 a new government eager, willing and able
to discuss Eurozone questions," said Henrik Uterwedde, deputy director of the
German-French Institute in Ludwigsburg, in south-western Germany. "There will be
a difficult period of coalition building."
Uterwedde said Germany was "sympathetic" towards Macron because of his
domestic reform efforts but that did not mean Merkel could or would be rushed.
"These measures will have to be explained to the public and Merkel is
unlikely to go quickly," he said.
Timing is tight. French officials worry that if progress is not made in the
first half of 2018, the urgency of Eurozone reform will fade as EU capitals
focus on Brexit, where negotiators have only until March 2019 to reach an
--MNI Paris Bureau; tel: +33 1-42-71-55-41; email: firstname.lastname@example.org
--MNI London Bureau; tel: +44 203-586-2225; email: email@example.com
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