The relationship between France and Germany, the eurozone's two largest economies, has received a new lease of life in the face of the Covid-19 outbreak. Both countries' governments have been working together to end the impasse over the €500-billion rescue package for the bloc, which was last week on the brink of collapse.
Merkel and Macron
In spite of well-publicised and deep differences between Paris and Berlin over the direction of the EU, both countries were instrumental in securing a deal over an economic package to provide financial aid to workers, businesses and governments that are having problems due to the outbreak.
The close working relationship between German finance minister Olaf Scholz and his French counterpart Bruno Le Maire was seen as being vital in overcoming resistance to the plan, particularly from the Netherlands and Italy.
“Scholz and Le Maire have operated extremely effectively together to help drive The Hague and Rome towards a deal,” the Financial Times quoted one EU diplomat as saying. Germany chancellor Angela Merkel and French president Emmanuel Macron "also did their part behind the scenes.”
Mr Le Maire said that the adoption of a common position from the start by the two countries was the "key to the success" of the deal.
“We have now all the required tools, not only to face the consequences of the coronavirus crisis, but to have a quick common recovery on a coordinated basis,” he said in an interview with Financial Times.
The fact that both governments were happy with the initial draft statement being discussed by finance minister meant that they could focus on winning over other capitals.
Nonetheless, the agreement finally reached on Thursday was far from categorical and failed to address all the disagreements between Berlin and Paris. The two nations remain on opposing sides of the battle line that has been dividing the eurozone - debt mutualisation.
An agreement was reached by eurozone ministers to create a recovery fund aimed at helping the single currency bounce back when the coronavirus is over.
The division comes over how this recovery fund will be financed. Paris is still pushing for mutualised debt through corona bonds or some another instrument, an idea which Berlin rejects.
“It is clear that they are not on the same page yet when it comes to the recovery fund,” said Christian Odendahl, chief economist at the Centre for European Reform. “The divide is still there.” Or, as one German official put it, “We agreed to disagree”.
The strong working relationship between Scholz and Le Maire was forged two years ago when the two held talks at a guesthouse from the German foreign ministry in a Berlin suburb. Scheduled to last just a couple of hours, the meeting ran through the night, finally ending at 7am the following morning.
Since then, the two finance ministers have continued to find common ground on a variety of issues ranging from capital markets union and banking to reform of the European Stability Mechanism (ESM) and the EU's bailout fund, which will play a key role in the coronavirus recovery.
Last week, the longstanding cooperation between the two ministers in charge of the eurozone's two largest economies was in evidence. The rescue package had been on the verge of collapse when Dutch finance minister Wopke Hoekstra said that aid from the ESM must come with macroeconomic conditions attached.
Reports came on Wednesday following last week's deadlocked talks that both Le Maire and Scholz were dismayed by the lack of progress.
Scholz said after the talks bore no results that it would be "inappropriate" to make aid contingent on “fundamental debates about the pension system, the tax system and the labour market”. Le Maire said that it was a source of "shame" for Europe that the talks had broken down in such a manner.
Nonetheless, Berlin and Paris continued pushing to get the talks back on track and broke down Dutch resistance. On Wednesday night, Angela Merkel and Emmanuel Macron spoke before their finance minister resumed deliberations.
Macron spoke to the Netherlands' prime minister Mark Rutte, urging for flexibility in the matter.
Le Maire and Scholz held several bilateral talks with ministers from other countries to feel out areas in which compromise could be reached. EU diplomats said the push gave much needed support to efforts by Eurogroup president Mário Centeno to get a deal completed.
“Co-operation with France was absolutely key to bringing this together,” a German official was quoted as saying. “Germany and France really laid the groundwork for the agreement.”
However, unanswered questions remain over the post-coronavirus recovery fund and whether or not joint debt would be issues to finance the rebuilding effort.
There were reports that Ms Merkel's office reacted with anger over the teaming up of Macron and eight other eurozone leaders over the issue of using eurobonds as a solution to the crisis.
“After a somewhat slow start, the Franco-German engine worked at full speed during the last few days and did its magic,” said the EU diplomat. “But we should not pretend that the deeper debate over debt mutualisation is resolved.”
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