Germany and France must coordinate better

By Sébastien Treyer and Nicolas Berghmans
Sébastien Treyer and Nicolas Berghmans

Germany and France’s support for the implementation of the European Green Deal is essential – and unequivocal. It is particularly evident in the fact that the climate component of the pact was adopted at the end of 2022. This is intended to bring it into line with the target of reducing emissions by 55 percent by 2030.

But is that enough? The energy crisis is putting pressure on all EU countries. A lot of money was spent to deal with the Covid pandemic. Now governments have to keep their spending under control – and at the same time find solutions to the current economic, social and environmental crises.

The European project and the cohesion of the EU are threatened by the consequences of the war in Ukraine. True, the pandemic has strengthened European solidarity, and Germany and France are working together to revive the economy. But the risks of divergence remain numerous. Going it alone cannot be an option.

Each country responds to the crisis sovereignly

The EU quickly adopted emergency measures after the Russian invasion of Ukraine and developed a strategy to weather the winter, adjust its energy mix, and skim off excess profits. Member states provided support to businesses and households. But many measures were aimed in different directions.

Of course, each country is sovereign in finding solutions to the social problems posed by this crisis. The French energy shield was particularly massive, protecting households from the sharpest price increases. But it was not targeted enough at the poorest households, it was not accompanied by accelerated support for investment in energy-saving equipment, and it protected businesses more than households.

Germany, for its part, is accused of using its own aid program to organize a kind of competitive devaluation by lowering domestic energy prices to support its industry. There seems to be no coordination between the two countries.

New forms of joint debt needed

The race for economic crisis aid, which could soon become a race for new green investments, is worrying for other member states. Their public coffers are not well filled. There is a great danger that this kind of crisis management will lead to growing economic egoism on the continent. It is currently only partially averted by solidarity mechanisms around shared debt such as NextGenerationEU.

Under these damaging political conditions, the EU cannot refrain from thinking about new forms of joint debt. France is making proposals on this, while Germany is seen as more reluctant. Both should deepen their dialogue on this – in transparency toward the other member states, especially during the Franco-German Council of Ministers, which will celebrate 60 years of friendship and pragmatic compromises around the anniversary of the Élysée Treaty next Sunday.

Better distribution of state aid

Should we return to the earlier, macroeconomic orthodoxy? Given the amounts that the US or China put on the table, it is reasonable that European players are not the last to allow state aid as well. Even more so if they appear necessary to support the green transformation of industry.

What is not sufficiently discussed, however, is the distribution of state aid paid by the member states to the companies. Statistics from the EU Commission on contributions within the temporary crisis framework speak a clear language: More than half is paid by Germany to its companies. 24 percent by France to its own economic operators. And the rest is shared by the other 25 member states!

This is something that needs to be talked about. The players and member states that are more reticent about state aid and committed to free competition must be heard. The European response to the American and Chinese plans must be built together with them. Otherwise, there is a risk of exacerbating economic imbalances within the single market. A joint approach is needed to develop and support the green industry.

Trade policy: concerns are justified

What about trade policy? Germany and France have finally agreed on how climate protection should be integrated into trade policy. But for the EU’s trading partners in the Global South, especially in Africa, there are also risks. In the race for state aid between the major economic powers of Asia, Europe and the USA, they could be squeezed out of the markets.

It is true that they are promised that their interests will be taken into account if green gas or hydrogen is purchased from them. But this does a poor job of hiding the individual strategies being pursued by member states, and Germany in particular. European actors are not showing African partners that they would have recognized the damaging effects of other large, uncoordinated economic decisions on their potential to develop economically. This will also be very dangerous for the European project.

Whether in joint debt policy, government support for climate-friendly transformation or energy-related trade policy, if Germany and France, the EU’s two economic heavyweights, do not want to jeopardize its cohesion, they must coordinate better.

Sébastian Treyer is the Executive Director of the Paris-based sustainability think tank IDDRI. Nicolas Berghmans is IDDRI’s leading expert on European affairs, energy and climate.

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