Germany beats France in extra time

By Raoul Ruparel

Not in football, but in the battle over Greece.

LONDON — The primary division in Europe which has been exposed by the most recent round of the Greek crisis is the split between France and Germany. This divide has long existed, and has grown wider since the election of Francois Hollande, but has mostly bubbled under the surface. It has manifested itself largely through eurozone inertia. With the two big players failing to agree on a clear future for the eurozone, the crisis response has been characterized by ad-hoc — and the minimum necessary — action to keep the single currency together. It also results in unambitious and piecemeal future steps forward and an inability to face up to the fundamental flaws of a far from optimal currency union.
But over the past days this divide has been laid bare for the entire world to see. Fundamentally, Germany was happy and willing to countenance a Grexit while France wanted to resist it, if not at all costs then at least at a much higher cost than most other eurozone members. The fallout from this clash could very well change the nature of the eurozone and its path towards future integration.

Of course, this depends on who won. Ostensibly, France did. Greece looks to have stayed in the eurozone and may well receive a further €86 billion bailout, bringing the total eurozone lending to Greece to a whopping €270 billion, over 150 percent of Greek GDP. France succeeded in forcing Germany to face up to the choice of either offering further support to Greece or taking the responsibility and blame for forcing them out of the euro. It did this while many of Germany’s key allies — The Netherlands, Finland and the Baltics — were largely in favor of a Grexit.
Getting Germany to agree to a bailout is hard at the best of times, let alone when it means spurning the views and beliefs of some of its key European allies. Furthermore, Germany then had to get the support of these countries, which included getting the leaders of The Netherlands and Finland to potentially row back on election promises to not commit any further money to eurozone bailouts.
This is a pretty strong case. However, in my view, it is not quite this simple. The entire construction of the deal remains very Germanic. Firstly, this is very much a deal which Germany (and probably its allies) would have been happy to sign up to a month, or six months, ago. The basic premise for keeping Greece in the eurozone was cash in exchange for strict reforms and adherence to the rules. This program is very much along those lines — in fact it involves more austerity, stricter and faster reforms, and greater oversight and involvement on the ground in Athens as well as significantly more privatization than previous offers.
Secondly, and following from this, the deal very much maintains the German view of a rules-based eurozone system. It has a clear framework and rule-set which countries adhere to or leave. In Germany’s view, Greece was given a choice and eventually chose to come around to signing up for these rules. In that sense, it seems that France and its allies have given more ground. This is not a deal they would have liked if they were presented with it earlier on, and certainly they would not have wanted to give such a strong endorsement to the German view of a rules-based eurozone system. France et al would have preferred a deal with less austerity, which may have set the path for moves toward a transfer union in the eurozone.
I’ll largely leave it up to the reader to decide whether France or Germany won out, though I tend to lean towards the latter. But why is this important? Is it not a largely pedantic debate to be having, given the stakes in play?
It is crucial for a number of reasons. Firstly, we could well be back here again soon. If a bailout is agreed, it will be based on cash disbursements in exchange for reforms and reviews being completed. This itself is a German construction. It’s not hard to imagine that a review goes uncompleted and cash gets held up, putting us back in the same situation. The Franco-German fault line will then come back to the fore, with the same debate being had again — whether to push Greece out of the eurozone or to ease the terms for staying in. In this sense, the can has been kicked down the road for now, but the first breakdown may determine the ultimate winner of the discussion.
Secondly, the balance of power between the two may well ultimately determine the future path of the eurozone. Currently, Germany’s rules-based system with minimal changes to the eurozone’s architecture seems to be winning out, as is confirmed by the Greek deal. I do not see how the culmination of this crisis has made deeper integration and real reform of the eurozone any more likely, something which many in France and elsewhere want to see.
There is one further point in France’s favor. For the first time under Hollande’s leadership, France has publicly faced up to Germany and tried to take a stand on the issue. It may not have won, and the intervention was largely on the procedure of keeping Greece in the eurozone not the wider ideological approach. But no matter. It has at least highlighted that there is a debate at hand, and a contest. Germany may have won — but in very hard-fought extra time.