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April 12, 2019

Where does Wednesday’s uneasy compromise leave the EU?

The extension of the Brexit deadline until October has at a stroke killed off almost all Brexit activity in the UK. An exhausted House of Commons has been dispatched for a 12-day Easter holiday. Theresa May and Jeremy Corbyn met briefly to agree to continue their talks, and this is it.

We think this is a good opportunity to focus on what Wednesday night's European Council says about the state of the EU right now. Franco-German tensions have been building up for some time, but they came out in the open during the dinner. We were particularly surprised by a tweet from the normally soft-spoken Norbert Rottgen, CDU chairman of the foreign policy committee of the Bundestag. Rottgen (@n_roettgen) accused Emmanuel Macron of sabotaging a European solution to the Brexit impasse and prioritising his own European election campaign. Rottgen, like Donald Tusk, is among those who are actively advocating a second referendum in the UK and who feel double-crossed by Macron’s tactics. We noted other comments, via Twitter, reflecting unnamed furious German officials who also expressed anger with the way Macron behaved. 

We have some sympathies with Macron in this particular dispute, if only because he raised a number of issues that would not have been addressed by a long extension. A short extension would have put more pressure on moderate MPs in the House of Commons to embrace a compromise. And why should it be in the EU’s interest to wait until Theresa May leaves office, and is replaced by a hardliner, who would then become a member of the European Council himself? 

The tug-of-war over the extension throws us back to the worst days of the European Council during the eurozone crisis. That unleashed a lot of hyper-activity with the creation of the ESM, reform of the fiscal rules, and the first two stages of a banking union. But the Council's policies did not address the fundamental drivers of the crisis: imbalances among eurozone member states; the doom-loop between banks and sovereigns; and pro-cyclical fiscal policies. Some of those are returning to haunt the eurozone at a time when it is confronting a synchronised economic downturn of as yet uncertain strength and duration. 

We would not characterise the events of Wednesday night as a break in Franco-German relations. We are not at that stage yet. But it is perhaps a turning point. Angela Merkel has rejected much of Macron’s eurozone reform agenda, and the little that is left is now being challenged by the Netherlands and its new Hanseatic league friends.

Franco-German unity will come under further strain if, or rather when, Donald Trump imposes tariffs on German cars. The EU is about to get a mandate for trade talks to avert those sanctions, but we see no chance of France ratifying a wider trade deal with the US, especially one that opens up the EU’s agricultural markets to US imports. 

Bilateral tensions are also rising in the debate about European defence and security. We reported that French diplomats and commentators were shocked when hearing the European proposals of Annegret Kramp-Karrenbauer, the CDU chairperson. She called for France to give up its permanent seat at the UN Security Council, and to built a joint aircraft carrier - a proposal that lacks any rhyme or reason especially in view of Germany’s squeeze on defence spending. What we see is a degree of realism about Germany descending upon the Élysée Palace.

Other conflicts ahead concern the appointment of the president of the European Commission. We doubt very much that Macron would support Manfred Weber, not even as part of a broader deal. And on Brexit, we would not rule out Macron at some point declaring the October renewal debate to be his ultimatum - beyond which he will not agree to extend. He may not actually cast his veto, but he could use it as a bargaining chip in the post-electoral negotiations. Macron has realised that he gets further by playing tough than by playing Merkel’s junior partner. This is a significant moment in European politics.

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