Fighting Stagnation Franco-German Industry Pact Resurrected

France and Germany have proposed deeper integration of their industrial policies and business regulations to spur growth.
The growth dream team?

Germany and France have decided not to let their dispute over budget deficits get in the way of closer coordination of industrial policy and greater economic integration.

The finance and economy ministers of the euro zone’s two leading economies announced their intention to rekindle the Franco-German partnership after meeting in Berlin on Tuesday.

Faced with an average unemployment level of almost 12 percent in the 18-country euro zone and a government debt level of more than 90 percent of economic output, France and Germany are keen to boost economic growth, which would help to tackle the region's economic problems.

The euro zone economy contracted by 0.4 percent last year and is expected to grow only 0.8 percent this year and 1.3 percent in 2015, according to forecasts from the International Monetary Fund in October. These numbers pale in comparison to expected growth rates of between 2.2 and 3.2 percent in the United States and Britain.

To support growth, German Finance Minister Wolfgang Schäuble said they would propose “leading German-French projects” as candidates for a planned E.U. investment program.

Earlier in the day at the first German-French Business Forum sponsored by Handelsblatt and its partner newspaper Les Echos in Paris, French Economy Minister Emmanuel Macron compared the new cooperation to the Schengen Area, which removed internal borders and passport controls across much of the European Union in the 1990s.

“Economically and socially we can make much more progress in integrating and building up a Schengen for the economy,” Mr. Macron said, putting an emphasis on removing barriers for business by encouraging mobility.

If it is not possible with all 28 E.U. countries, then “we should take the risk and make a new Schengen with a few countries,” Mr. Macron said.

We have never been as far as we are today in discussions between Germany and France. There is a common agenda. François Villeroy de Galhau, COO BNP Paribas

Germany’s deputy economy minister, Matthias Machnig, agreed: “I will pick up the ball from Macron. We must overcome the national borders in the energy sector, the digital economy and electric mobility.”

He said that Europe is at risk of losing its independence if it does not quickly make progress in IT and battery technology.

The official paper presented in Berlin calls for several measures to encourage growth and investment, including greater cooperation between the German and French state development banks, the KfW and BPI. It also called for joint investment in digital infrastructure across the border of the two countries and harmonization of business regulations.

“France and Germany are again becoming the motor of Europe that is so desperately needed,” said German Economy Minister Sigmar Gabriel. He said Berlin and Paris would work together on “projects for European unity.”

The model of a new Schengen was well received by the business community at Handelsblatt’s Business Forum on Tuesday. But the companies want concrete solutions rather than political pipe dreams.

Ann-Kristin Achleitner, a professor of economics and supervisory board member of multiple German companies, does not see the cure in “the merger of large companies in the same industry.” For large energy companies it is more interesting to join industrial companies and startups than it would be to merge with each other, she said. Business incubators still have too little contact with other European countries, she said.

For François Villeroy de Galhau, chief operating officer at BNP Paribas, the investment projects envisaged by France, Germany and the European Union must become more concrete, so that they can sensibly be put to good use with the means at disposal.

Investments in Germany-France-USA-OECD-average-Nov3-2014

“We French always think about infrastructure. But beyond that there are the energy and digital sectors,” he said. In those areas, especially, there needs to be standardized regulation, he said. He praised the collaboration: “We have never been as far as we are today in discussions between Germany and France.” He added there is “a common agenda.”

Nicolas Peter, the head of European sales at BMW, also considers a uniform framework for regulation to be crucial. “In California, cars without drivers will be allowed starting in 2015 – we urgently need common regulation in order to be able to invest in this area,” he said. That also applies to digital service providers. He sees Europe as having a promising future in electric mobility, but government action is especially necessary involving “the infrastructure for charging stations.” The country where the battery factor is located is of secondary importance, he said.

Léo Apotheker, the vice president of French electrical systems supplier Schneider Electric, also said he considers common regulation more important than joint factories. “France and Germany should standardize data protection, the rules for intellectual property, and the saving of data on clouds,” he said.

Peter Hartz, the father of labor market reforms that Germany implemented under former Chancellor Gerhard Schröder, also advised “tackling Europe’s most urgent problem: youth unemployment.” With 5.4 million young people out of work and without good training, Europe cannot thrive, he said. He called for encouraging more young Europeans to spend time abroad: temporary stays abroad do not lead to a brain drain but allow young people to get started in a career.

That, too, must be a part of a “Schengen for the economy,” he said.


Thomas Hanke is Handelsblatt’s Paris correspondent and Jan Hildebrand is deputy bureau chief in Berlin. To contact the authors: [email protected] and [email protected]