The French Renaissance

Germany is seen as the leader of Europe, but three developments are making France more powerful. Building on this momentum, France will become the leader of the southern bloc of the EU. Consequently, France will try to remake the EU in its own image, which could take Europe in a different direction.

Observations

  • The agreement on the top jobs of the EU indicates that France is taking more control of Europe. The most important position, the head of the European Central Bank, will be taken by former French finance minister Christine Lagarde. Although the German politician Ursula von der Leyen will become president of the European Commission, France successfully prevented Germany’s Manfred Weber from taking the position. Under the informal “spitzenkandidat” agreements, the party with the most votes picks the head of the European Commission, which would have led to Weber taking the position. However, France (and Spain) vetoed the decision, effectively ending the spitzenkandidat mechanism. In turn, Von der Leyen is enthusiastically supported by all countries, except Germany itself, which indicates that France got what it wanted (indeed, like France, Von der Leyen wants a European army). Charles Michel, the new European Council president, is also a confidant of French president Macron. Last but not least, all of the top jobs are now taken by fluent French speakers.
  • France became the first major economy to impose a tax on tech firms. The law will levy a 3% tax on total annual revenues of the largest tech firms providing services to French consumers.
  • France and Italy signed an agreement to build a military shipbuilding alliance. The project was originally conceived in 2017 when France and Italy wanted to create a “European champion” in military shipbuilding.
  • France is unilaterally trying to save the Iran deal.
  • Southern Europe is growing stronger vis-à-vis the Northwest of Europe. More than a year ago, we predicted that after years of recession and austerity, Southern Europe would find itself in a stronger position to bargain over the Eurozone’s monetary policy (a Frenchwoman will now head the ECB). The South is also gaining leverage by growing closer to China and the Mediterranean world.

Analysis

France is part of both northern and southern Europe. Geographically, in the north lies the continent where France is threatened by rival powers from all sides. This continental geography required France to develop highly centralized government institutions, reflected by the strong central government in Paris, the predominance of the Grandes Écoles in French politics and the formidable French military. In the south lies the Mediterranean. This maritime geography allowed France to develop global networks of power.

As France is part of both worlds, its focus historically oscillates between the continent and the sea. As Germany became the leader of Europe, France turned its focus towards the Mediterranean. France strengthened ties to Morocco and Tunisia and former president Sarkozy even launched plans for a Mediterranean Union. Meanwhile, France played second fiddle to Germany in the EU. But the tide could turn again. Three developments are making France more powerful.

We can expect the EU to become much more active in Africa (where France still holds significant influence) through trade and investment

First, the German leadership of Europe is under pressure. Under Merkel, Germany has alienated both eastern Europe (over migration) and southern Europe (over fiscal policy). More recently, France, with the support of eastern and southern Europe, dealt a blow to German leadership by ending the spitzenkandidat agreements. Furthermore, although the French economy has its own problems, the German economy is showing signs of weakness. Most importantly, Germany is heavily dependent on trade (exports amount to 50% of GDP) which makes Germany extremely vulnerable to protectionist measures by the U.S. A weaker German economy will further delegitimize German leadership of Europe.

Second, the French vision for Europe is gaining ground. Although Macron has been calling for “a stronger Europe” for some time, the great power competition between the U.S. and China has intensified calls for European integration (for example, on digital policy and security) and European industrial champions. Since this aligns with the French vision of government, which is top-down and protectionist (unlike Germany’s diffuse and decentralized model), the French vision for Europe is gaining support.

Third, as Southern Europe grows more powerful within the EU, so does France. The departure of the UK significantly weakens the Northwestern bloc. The South is also benefiting from stronger ties to China. Indeed, the latest round of European top jobs reflects the growing power of Southern Europe. In the coming years, France, as the strongest economy of the South, will emerge as the leader of this bloc. Consequently, France will become the swing-state of Europe (between north and south), wielding significant influence over EU policy.

We could speculate as to how Europe will change as France grows more powerful. After Brexit, France will be the only country in the EU with a global navy, a formidable military, nuclear weapons and a seat on the UN Security Council. As such, France will try to lead Europe, as reflected by Macron’s attempt to unilaterally save the Iran deal. More importantly, France will advance its agenda within the EU by defending Southern European interests (e.g. monetary and fiscal policy). As France grows more powerful within the EU, we can also expect the EU to become much more active in Africa (where France still holds significant influence) through trade and investment. In Europe itself, we can expect more protectionist policies (e.g. taxing foreign tech companies) and attempts to build European champions.

Implications

  • An important factor for France’s growing power is the reform of the French economy. Macron’s earliest policies for labor market reform are now starting to show promising results, notably in terms of job creation. His second round of reforms, including reorganization of the public sector, reform of unemployment insurance and welfare benefits, and rationalization of the French pension system, was unveiled a few weeks ago. These reforms are key to unlocking France’s potential of favorable demographics (fertility rate of 2.0, compared to Germany’s 1.5) and strong industries (e.g. energy, automobile, aerospace, railway, advertising, agriculture). Interestingly, just two decades ago, Germany was seen as the “sick man of Europe” before Gerhard Schröder launched a series of labor-market reforms much like those of Macron.
  • As France becomes the leader of Southern Europe, the trend of a tripolar EU (North, South, East) will continue. France will try to remake the EU by defending Southern European interests. Nonetheless, this new balance of power could change the direction of the EU (e.g. monetary and fiscal policy, digital industrial strategies, African trade and investment).

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Alibaba’s Ma:

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Tencent’s Ma:

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