Ruegen, a windswept island off the Pomeranian coast of Germany
where Angela Merkel and Francois Hollande met for a boat tour and
stroll on a pier late last week, is about as out of the way as it
On Saturday, at the end of their 20-hour sojourn, the conservative
German chancellor and socialist French president unveiled a joint
statement on Ukraine and promised to coordinate closely on Europe's
future once looming elections to the European Parliament are out of
But their show of total unity, under a drizzling Baltic sky, should
fool no one. Beneath the surface, Europe's most important
relationship remains awkward and strained, dogged by an economic
imbalance between Berlin and Paris that has seemed to widen even as
the bloc's financial crisis has eased.
Two contentious Franco-German debates in the past weeks - the
wrangling over the future of French trains-to-turbines group Alstom
and a row over the strength of the euro currency - have only
underscored the divide between the partners on either side of the
A decade ago, the French government rallied to prevent German rival
Siemens from snaring Alstom's choicest assets when the French firm
was on the verge of bankruptcy.
Now it is reduced to pleading with Siemens to buy those same assets,
and cajoling Berlin to go along with its dirigiste plan, in order to
avert what Paris sees as an even worse fate for the once-proud maker
of TGV high-speed trains - an Anglo-Saxon takeover, care of U.S.
giant General Electric.
Separate complaints from Paris about the strength of the euro,
currently hovering near a 2-1/2 year high of nearly $1.40, are not
Since the single currency was launched a decade-and-a-half ago,
France has often blamed its economic woes on the euro and the
failure of the European Central Bank to rein it in.
But the latest salvoes, from new Prime Minister Manuel Valls and
Economy Minister Arnaud Montebourg, have a more desperate ring than
They come at a time when France is struggling mightily to bring its
deficit down to an EU-mandated ceiling of 3 percent of gross
domestic product (GDP), even after being granted an extra two years
to achieve the target.
As it has on Alstom, the German government has pushed back politely
but firmly, cautioning French politicians against meddling with the
currency and telling the independent ECB how to do its job.
"Berlin and Paris are no longer playing in the same league," says
Dominique Moisi, a founder and senior adviser at the Paris-based
French Institute for International Relations (Ifri). "This imbalance
is at the very heart of the Franco-German malaise."
Beyond the economic divide are two contrasting visions of European
integration that could clash once the EU elections are out of the
way and a new European Commission is in place.
Ask officials in Berlin what Europe's next big priority should be
and they talk about writing tougher budget rules agreed during the
height of the euro crisis into EU law through changes to the bloc's
But in France, there is growing discomfort with what is seen as a
German-made rulebook for Europe and strong resistance to treaty
changes that risk dividing Hollande's Socialists and further
fuelling Marine Le Pen's far-right National Front.
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"There's a lot of mutual frustration at the moment," said Gilles
Moec, a French economist at Deutsche Bank in London.
"European rules that many in France identify with Germany are coming
back to bite the French government," he said, referring to the
deficit debate. "At the same time, there is a growing sense in
France that Europe's problems can be traced back to German economic
policies, its big current account surplus and an ECB that is too
The appointment of the next European Commission president may only
deepen the anxiety level in Paris. The best-case scenario for
Hollande is that Martin Schulz, a German Social Democrat who enjoys
a close relationship with Merkel, gets the job.
The worst-case is Jean-Claude Juncker, the former conservative prime
minister of Luxembourg and die-hard federalist, who has publicly
chastised France for blaming its woes on the euro and warned against
granting Paris any "special treatment" on its deficit.
UKRAINE WILD CARD
It is not all doom and gloom between Berlin and Paris. Officials in
Merkel's entourage see the appointment of the moderate Socialist
Valls in a government reshuffle last month as proof that France is
gravitating towards Germany on policy.
In private, their comments are tinged with concern about the pace of
change in their western neighbor. But in public, they studiously
avoid any comments that might be construed as criticism of Hollande.
"The domestic political situation for Hollande is a difficult one.
So external advice isn't helpful," Michael Roth, a German Foreign
Ministry official in charge of Franco-German relations, told
Moisi of Ifri says the wild card for the relationship is Ukraine,
where the two have sung from the same songsheet so far. He holds out
hope that the showdown with Russia can accomplish what the euro
crisis failed to do - bring Europe and its two big powers closer
In remarks at an Alfred Herrhausen Society event in Berlin on
Friday, he mused that Russian President Vladimir Putin may one day
deserve a place alongside Jean Monnet as a father of European unity.
"The euro crisis may be behind us but the geo-political crisis is
right in front of us and it can force Europe to think bigger," he
said. "At the end of the day, Europe may come to the realization
that you can't separate energy policy, foreign policy and fiscal
(Reporting by Noah Barkin; Editing by Jon Boyle)
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