Is France a ‘Peripheral’ Country?

A few weeks ago Reuters reported that the French finance Minister, Pierre Moscovici, fell asleep during the final late night negotiations over the Cypriot bank bailout on March 24. It apparently fell to the International Monetary Fund (IMF) managing director, Christine Lagarde—a former French finance minister herself—to wake him up. No doubt the grueling round-the-clock schedule of the Cyprus negotiations would have taxed the most vigorous participant, but that should not stop speculation about the meaning of what happened.

For any leading euro area finance minister to doze off during key negotiations to settle the economic future of another euro area member is an embarrassing dereliction of duty. Perhaps Mr. Moscovici was assured that his 70-year-old old German counterpart, Wolfgang Schäuble, would defend French taxpayers’ interests. Moscovici’s staff—which failed to wake him up—seemingly agreed. Or perhaps Paris simply viewed the German-led bail-in solution in Cyprus as a fait accompli about which they could do little. Or perhaps the French government’s support for costs imposed on creditors and uninsured depositors was stronger that it wished to acknowledge. Taking a nap during the negotiations could thus have been a subtle way of Moscovici stepping outside the door at the key decision moment.

The other euro area finance ministers could probably be forgiven for letting sleeping ministers lie. But by failing to wake Moscovici up, they effectively rendered France’s potential input as irrelevant. Probably to avoid that implication, Lagarde woke up her successor.

Whatever the underlying motives for Moscovici’s sidelining at the Cyprus negotiations are, the broader reasons for France’s evident loss of influence in the EU since the beginning of the crisis are several.

Paris has been hit by bad timing luck in European affairs. My colleague John Williamson once explained that a period of “extraordinary politics” follows serious crises, compelling leaders to establish new institutions, such as the so-called Permanent Five members (P-5) in the United Nations Security Council or the de facto clout wielded by U.S. and European members of the IMF Board resulting from their dominant global role in the 1940s. In European affairs today it matters for a country to be economically strong in a time of severe crisis.

Ironically, Chancellor Angela Merkel and Germany are reaping the unforeseen national benefits of reforms instituted by her predecessor, Gerhard Schöder, a decade ago in response to Germany’s status then as the “sick man of Europe.” Its weakness mattered little because nothing dramatic was happening at the time to the European institutional design following the collapse of the constitution treaty negotiated under the leadership of former French President Giscard de Estaing. Today Germany is strong when it matters, and able to play a leading role in the birth of important and permanent new European institutions like the updated fiscal surveillance framework (two-pack/six-pack, fiscal treaty), the European Stabilization Mechanism (ESM), and now the banking union. These redesigns have been largely devoid of obvious French fingerprints, even if France can take credit for helping to goad Germany into taking action at critical moments.

If Germany benefited from Schröder’s early reforms, France’s situation results from its profound misreading of the effects of the euro introduction, and the political dynamic of crises. Germany’s original agreement to give up the Deutsche mark for the euro back in the 1990s has historically been seen as a concession in return for France’s acceptance of German reunification. (Chancellor Helmut Kohl also saw the euro as a reunified Germany’s anchor in Europe.) With the euro’s advent, Paris was free from the yoke of having to pursue German monetary policies to defend the “Franc Fort” in the 1980s. The crisis, however, has bestowed disproportional political power to Germany, which as the euro’s anchor has been able to set the crisis response agenda.

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