With all eyes fixed on the American presidential elections, the scale of the looming crisis in France and Germany has gone largely unremarked. But it may so change the political geography of Europe that arguments for and against the EU will be made redundant. A pervasive sense of decline in both countries, only partially justified but none the less virulent, is destabilizing not just the structures of the EU -- but the political systems of France and Germany.
Last week in France, charismatic Finance Minister Nicolas Sarkozy announced he would resign from the government in order to challenge for the leadership of President Jacques Chirac's UMP party, despairing of what is seen in France as a do-nothing regime that is fiddling while the country burns. The economy is mired in low growth and high unemployment; government spending at 54 percent of GDP can go no higher.
ILLUSTRATION: YU SHA
There is universal agreement that France needs decisive action to reverse economic decline; there are rancorous arguments about not just how the economy should be run and society organized but whether the Constitution of the Fifth Republic works any more. The socialist opposition wants to limit the president's current powers to allow more pluralism. With two-and-half years to run until the next presidential elections, France is descending into acrimony and division.
In Germany, Chancellor Gerhard Schroder is presiding over the wreckage of the SPD, once the standard bearer of European social democracy. This month sees four key state elections, including the vital election in North Rhine Westphalia, the SPD's historic heartland. Sixteen percent behind in the polls there, its loss would be a disaster, not just for what it signals about Schroder's standing but because it will mean control that of the German upper house will pass to the conservative CDU and make him a titular chancellor, governing only within the parameters of what his opponents will permit.
His capacity to continue will be undermined. If he went, an SPD successor would be forced to abandon recasting Germany's unemployment benefit system so that it stops offering what amounts to a generous pension for life and, instead, becomes a means of moving the unemployed from one job to another. This is a vital prerequisite to restoring German economic health, but it is the direct cause of Schroder's crisis. His party can't and won't accept the need for reform and neither does an important swath of public opinion.
Germany is still two countries and East Germans regard any reform of the welfare system as directed against them because more than twice as many East Germans are on unemployment benefit as in the West. They are right. Thus it is no surprise that the "Monday" demonstrations against the reforms are centred in the great East German cities of Leipzig and Dresden or that the demonstrators echo the fight against communism with their chant of "We the people." The protests are a focus for all the resentments of reunification and for the continued feeling among East Germans that they hold a second-class status. Germany and Schroder are in a corner; reform of the welfare state is an imperative, but the reform program threatens the cohesion of the state.
As in France, the structures of the German political system are now being put in play. Twisting and turning for any kind of electoral advantage, Schroder last week said he was prepared to reverse Germany's 54-year-long ban on the referendum, the populist tool used by Adolf Hitler to establish the Nazi regime. Germany could then hold a referendum on the EU constitution. This is a key plank of Germany's postwar Constitution being knocked away. For the paradox of referendums is that they are fundamentally anti-democratic, confusing democracy with populism and placing power in the hands of those who can manipulate public opinion for their own ends. Germany's history is testimony to the consequences.
The proximate cause of both France and Germany's political crisis is that they are not generating enough jobs and growth even though both are high productivity economies. Employment in advanced economies today comes from the service and knowledge sectors rather than traditional manufacturing, under assault from low-wage countries in an era of globalization. Thus Germany and France need more investment in their universities, in research and development and in links between universities and business. They also need to change the structures in their labor markets, from wage bargaining to rules on working hours, that inhibit employment growth in the growing parts of their economy while designing welfare systems that support and encourage workers to move from areas of decline into areas of growth.
And they need more demand.
These are, at bottom, technical issues; both economies, given their inherent strengths -- Germany is the world's No. 1 exporter this year -- would respond quickly to any decent reform package. The issue is putting one together given the implacable opposition by organized labor in both countries to even the tiniest concession, even as both national conversations are dominated by talk of irreversible decline and the need for change -- an echo of Britain in the 1970s.
The immobilism and sense of decay infects consumer confidence; in both countries consumers are building up their savings,weakening demand growth and deferring still further the chances of an economic recovery.
Opposition to change may seem irrational, but that in turn is rooted in history. The German left is profoundly attached to the German welfare state not just because it represents social democracy but because it is a shield against a repeat of the 1930s. In France the idea of capitalism is compromised by its collaboration with the right and defeat in war. To surrender social advance, even in the name of reform and necessity, is to give into forces that historically have brought France low. For both countries the EU offers a different,brighter history. But instead of buttressing the EU, Chirac and Schroder -- as soft option politicians -- find it easier to blame it to help them out of their political weakness. In so doing they lock themselves more tightly into the national discourses that are the source of their problems.
It could all turn ugly; an unratified European constitution, stagnating economies, new dark nationalist politics and a fragmenting EU.
To imagine that Britain or any other EU country will be immune from this is absurd; what happens in mainland Europe will directly impact upon us as it has throughout our history. What is needed is an understanding that if European states don't hang together they will hang separately -- and that because the EU is the best we have, we'd better make it work.
Instead national leaders, British Prime Minister Tony Blair included, strenuously avoid the language of working together. These are unsteady times for Europe -- without a recovery of purpose and leadership the future could look sticky indeed.
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