Collapse of the French and German Government:Turmoil in the EU’s Franco-German Engine

The European Union was born out of the ashes of World War II, and gained recognition as not just an economic alliance, but an overall integration project, fuelled by two of its biggest Member States- Germany and France. Former French President Jacques Chirac described them as “When France and Germany advance, all Europe advances. When they don’t, it grinds to a halt.” ^[1] In this context, the phrase ‘Franco-German Engine’ or ‘Franco-German Motor’ gained traction during the second half of the twentieth century, exemplifying how the two Member States have powered so much of the post-war European project since the bloc’s inception. Starting with the Élysée Treaty, signed in 1963, between France and the Federal Republic of Germany, after several decades of rivalries and conflicts, the subsequent leaders of the two countries found ways to strengthen cooperation to support European integration. ^[2]

The engine is now put to test with the two countries at crossroads beset by political crisis and economic turmoil. There has been a collapse of the German as well as French government within the span of a month; the reasons for both find commonality in their parallel fiscal woes, creating an intersection between their domestic political and economic battles. The timing could not be worse with a compromised Ukrainian security at the periphery and the return of America First policies under Trump’s second presidency across the Atlantic. Not only do the failing governments create an unstable political environment and lack of effective governance at home, they also create a vacuum in EU leadership, at a geopolitical juncture when it is most needed. The developments in France and Germany have shaken the political landscape in Europe and paralysed the duo that traditionally stood at the centre of EU decision-making.

Even before the French and German governments had collapsed, Europe’s economy was going through a rough patch with sluggish growth rates and lagging competitiveness versus the US and China. Over the course of 2023, the European economy has seen close to zero growth. ^[3] Combination of a global pandemic, rampant inflation, and an unprecedented energy crisis has plunged Europe into recession, which is well into its second year now. Terrified of deficit spending, many European leaders have been frantically cutting budgets at a time when their economies are desperate for more spending. These economic decisions have not only irked the citizens, but also incited anti-government protests, and helped facilitate the rise of far-right parties as seen in the case of Hungary, Italy, Netherlands, Finland, among others. France and Germany witnessed the rise of the far-right National Rally (RN) and Alternative für Deutschland (AfD) respectively, but a fragmented political landscape with multiple elections and complicated coalitions in both countries is further triggered by their economic battles.

Europe’s largest economy, Germany, is facing its biggest crisis since reunification and is headed towards a path of no return. After five years of stagnation, Germany’s economy is now five percent smaller than what it would have been if the pre-pandemic growth trend had been maintained. ^[4] The German economic model is further broken due to the end of supply of Russian gas and declining exports from China, in course of an attempt to decouple from the Chinese markets. The ‘traffic-light coalition’ government of three ideologically different parties- social democrats, market liberals, and the greens- has collapsed over disagreements on the country’s economy. These disagreements emanated over how to balance the German budget- by furthering austerity measures or increasing government borrowing. After Chancellor Olaf Scholz lost a confidence vote on December 15, amid mounting economic and security challenges, it became clear that Germany will remain in the hands of a caretaker government, ahead of elections next year.

A big economy like Germany does not collapse overnight. The decline has been slow and protracted, and is taking all of Europe down. There is a need to return to a kind of policy framework that helped drive Germany’s post-war reconstruction, resting on the pillars of low taxation and limited regulation. With the German understanding of a ‘debt brake’, this would reduce the role of the state as the state will be able to spend only as much money as it takes in, primarily from taxes and levies. ^[5] During Angela Merkel’s 16 years as the German chancellor, the controversial debt brake was passed, which led to underinvestment across sectors of defence, transportation, and education. This investment trend continues with the following graph showcasing that Germany does not invest as much as other big economies.

With a pivot towards modernizing infrastructure and accelerating digitization efforts, the bottom line remains that in order to revive competitiveness, Germany needs to spend more.

Similarly, the French government saw deep fissures over the 2025 budget. This led to the collapse of the French government after Prime Minster Michael Barnier was ousted in a no-confidence vote- first such scenario in France since 1962. The budget which triggered his downfall was described as “toxic for the French” by RN leader Marine Le Pen and is now defunct. ^[6] The budget included €60 billion in deficit reduction, aiming to bring down France’s budget from 6 percent of national output, or GDP to 3 percent by 2029. Barnier’s reformative budget represents the magnitude of the challenge. France has been stagnating with a government which accounts for nearly 60 percent of the GDP, high taxes, and significant inefficiencies when it comes to public spending. The unemployment rate is stubbornly high, with youth unemployment at a striking 18 percent. ^[7] While the French government has always aimed to provide social safety nets, expected return goals on the spending have never been met.

France has the potential to redefine its economic model and break the cycle of stagnation. Any kind of reform would require short-term sacrifices for long-term gains, paving the way for a stronger, more resilient economy. The road to reformation would include significant improvement in essential services such as education and infrastructure, promoting private sector growth, cutting down on subsidies, and eliminating bureaucratic inefficiencies, in order to bring down public debt. Finally, a stable and decisive leadership ensuring public trust and resilience would be a strong pillar in France’s economic recovery.

As the two countries that make up almost half of the eurozone economy remain stuck in a political paralysis well into 2025, the question remains whether the Franco-German engine is really pushing Europe ahead? Economic weaknesses in France and Germany have broader implications for the EU by weakening its position globally. The Union heavily relies on political backing from the two biggest Member States whose national budgets are bigger than the EU’s, and their economies represent 40 percent of the Union’s GDP. Without a doubt, the time to act is now to salvage the inter-linked political and economic turmoil. Both Germany and France are deeply engrossed in debates on how best to revive their economies and bolster national defence, and at the same time bridge social divides and ease voter anxiety to ensure a politically and economically stable 2025. In the face of economic stagnation and decline, the respective decisions France and Germany make to their domestic economies will determine the future of the EU as well. The world is closely watching.

Endnotes

^[1] Jon Henley and Deborah Cole (2024), ‘Why the Franco-German Engine that Powered the EU is Currently Kaput’, The Guardian, December 15, 2024. https://www.theguardian.com/world/2024/dec/15/why-the-franco-german-engine-that-powered-the-eu-is-now-almost-kaput [3]
^[2] Mathieu Droin (2022), ‘Rebooting the Franco-German Engine’, Centre for Strategic and International Studies, October 5, 2022. https://www.csis.org/analysis/rebooting-franco-german-engine [4]
^[3] Rogé Karma (2024), ‘What Is Going on with Europe’s Economy’, The Atlantic, March 4, 2024. https://www.theatlantic.com/ideas/archive/2024/03/america-europe-post-pandemic-growth-comparison/677617/ [5]
^[4] Jana Randow and Martin Ademmer (2024), ‘Germany is Unravelling Just When Europe Needs it the Most’, Bloomberg, December 16, 2024. https://www.bloomberg.com/news/features/2024-12-15/germany-is-unraveling-and-the-decline-threatens-to-become-irreversible [6]
^[5] Sabine Kinkartz (2024), ‘What is Germany’s Debt Brake?’, Deutsche Welle, July 11, 2024. https://www.dw.com/en/what-is-germanys-debt-brake/a-67587332 [7]
^[6] Amy Walker (2024), ‘French Government Collapses in No-Confidence Vote’, BBC News, December 5, 2024. https://www.bbc.com/news/articles/cdxz934p56qo [8]
^[7] Matthias Bauer (2024), ‘France and Germany: Transforming Challenges into Leadership Opportunities’, European Centre for International Political Economy (ECIPE), December 2024. https://ecipe.org/blog/france-germany-transforming-challenges-into-leadership-opportunities/ [9]

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