France's dynamic new kid on the EU block, president Emmanuel Macron, had made the closer integration of the EU, and specifically the eurozone, a central plank of his election campaign. In its aftermath the new president made his way immediately to Berlin to press his ambitious plans on a sceptical but cautiously accommodating Angela Merkel.
After the German election, we were promised, they would make common cause to advance the EU's political and economic response to Brexit. Germany and France, the old alliance reforged, would once again lead the way for Europe.
But that election has made Macron’s ambitions a bit more difficult to achieve, the hill, that much harder to climb, although on Tuesday in his much-heralded speech at the Sorbonne he did not appear to be cutting his cloth to that new reality.
Merkel has said only she would be happy with a small budget and a common fund to help weaker economies carry out tough reform
Merkel's weakened parliamentary mandate and the prospect that she will need to forge coalition arrangements with both the liberal FDP and the Greens seriously undercuts the possibility of German support for the key Macron proposals outlined at the Sorbonne – a separate eurozone budget and parliament, a finance ministry and finance minister, and a European monetary fund for the eurozone.
Merkel has said only she would be happy with a “small budget” and a common fund to help weaker economies carry out tough reforms.
Both minor German parties are strongly supportive of the European project but differ sharply over their attitude to further economic integration. Christian Lindner, the FDP leader, has insisted he would put the brakes on Macron's eurozone budget if it meant plugging deficit holes in Italy or France. "For us, it's unimaginable," he has said.
The FDP has articulated the fears of some in the German business community that the eurozone might – under Macron’s plans – become in effect a transfer union, where member countries could issue common debt (the so-called eurozone bonds) and that the bill would be picked up by the German taxpayer.
Cem Ozdemir, the Green party leader, on the other hand, has pledged that "the next government, which we want to join, must support France. There is no other way." Austerity alone was no recipe for Europe, he added. But the FDP is likely to prevail.
Budget increase
France’s agenda is not only the creation of a eurozone budget, but a significant increase in the EU budget, currently limited by agreement by heads of state to one per cent of the bloc’s GDP. Macron, keen to see fiscal transfers between rich and poor states to increase convergence, has suggested it should be “several percentage points” of output, a level of ambition anathema to the Germans even before the election.
But confronting the politically difficult issue will be unavoidable in the year ahead. The withdrawal of the UK – leaving a €10 billion a year hole in the budget – and a range of new EU collective responsibilities, from defence cooperation to resettling asylum seekers, means that the framers of the next seven-year Multiannual Financial Framework (MAFF), as the budget is known, are already beginning to think of how extra cash can be raised. The alternative is even more unpalatable – huge cuts to programmes such as the Common Agricultural Policy.
Macron's radical agenda is not just economic but political – he sees the strengthening of the links between voters and European institutions as crucial
As a net contributor, it is a dilemma Ireland will have to face up to, although Leo Varadkar is unlikely to share Macron's fiscal expansionism. At the recent summit Varadkar also made plain his support for the union's free traders by opposing scrutiny on inward investment.
At a recent meeting a senior commission official predicted a more realistic EU budget ceiling might be 1.3 per cent of GDP, acknowledging that would be a difficult ask for member states, but just about what would be needed to meet current and new obligations. It would require a substantial increase in Irish contributions.
Macron’s radical agenda is not just economic but political – he sees the strengthening of the links between voters and European institutions as crucial, believing the democratic deficit is one of the reasons behind the rise of far-right and far-left populist parties. He has called for a special parliament for the eurozone’s 19 member states to bring some accountability to monetary policy.
And part of his response to the alienation of EU citizens is a demand that voters throughout the union be engaged in “democratic conventions” to debate its future.
‘Enhanced cooperation’
Macron is also intent on building on his French En Marche party on a European scale by creating an alliance of likeminded integrationist parties across Europe ahead of the European Parliament elections in 2019. Although there had been speculation that En Marche would align itself to the liberal ALDE group (to which Fianna Fáil is affiliated) it appears he wants to go it alone.
Whether there is room in a parliament already crowded with parties representing every colour of the rainbow for another group led by the French is doubtful.
“We must refind our ambition,” he told the Sorbonne audience, and has set himself a huge challenge in rekindling that ambition in his fellow heads of state. Few of them will not have blanched at his mention of “treaty changes, yes, if necessary”. More referendums... that is a bridge that Dublin will certainly not want to cross.
And his insistence on enthusiastically promoting "enhanced cooperation" provisions that allow groups to forge ahead with joint projects while others wait behind, will be viewed nervously by the newer member states of central and eastern Europe who already see the gap between them and "old Europe" widening. A Europe of variable speeds is already a reality – the fastest, however, just put their foot on the accelerator.
Patrick Smyth is Europe Editor