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Paris, Berlin at Loggerheads

DW staff (sp)October 28, 2008

French President Sarkozy's advocacy of state intervention to tackle the global financial meltdown has raised hackles in Germany. Chancellor Merkel is leading efforts to stymie greater government control of money markets.

German Chancellor Angela Merkel with French President Nicolas Sarkozy
Merkel is seen as the only leader in Europe able to stand up to SarkozyImage: AP

As EU governments scramble to shore up their teetering banks and reassure jittery investors and citizens amid a worsening credit crisis and looming recession, fears are growing of a widening rift between Europe's largest economies, France and Germany, over how to handle the financial crisis.

French President Nicolas Sarkozy, who holds the rotating EU presidency, has called for an "economic government" for the 15-nation euro zone and urged EU countries to take stakes in strategic industries as the financial crisis bites. The French president has also announced the creation of a sovereign wealth fund for France to protect key firms from hostile foreign takeovers.

Sarkozy is reportedly pushing his plans ahead of emergency talks on the global market turmoil in Washington on Nov. 15 between the world's richest nations and largest emerging economies.

French plans alarm Germany

The French plans have sparked alarm in Germany. Berlin views the proposals as too interventionist and running foul of EU competition laws. German leaders have long seen French calls for greater government control of financial markets as an attempt to undermine the independence of the European Central Bank.

In addition, there are fears that coordinated action in the euro zone would put the 12 EU countries that do not use the common European currency at a disadvantage.

German Economy Minister Michael Glos
Glos has been Germany's most vocal opponent to French plansImage: AP

German Economy Minister Michael Glos strongly resisted Sarkozy's latest proposals, saying they "go against the successful principles of our economic policy."

In a recent interview, Glos said most economic policy, including national budgets, should be the responsibility of individual states. The minister also ruled out a Europe-wide stimulus package, pointing out that the economic situation in each European country is different.

On Tuesday, Oct. 28, Germany's Guenther Verheugen, vice-president of the EU Commission, became the latest to criticize Sarkozy's plans for a partial nationalization of key industries.

"The experiment ended disastrously in Eastern Europe," Verheugen told German daily Passauer Neuen Presse. He added that the French plan fundamentally contradicted the "European idea of free entrepreneurship."

All eyes on Merkel

Germany isn't the only country uneasy of French plans to handle the crisis.

Vaclav Klaus
Klaus was critical of Sarkozy's financial plansImage: picture-alliance/ dpa

Speaking in a television debate, Czech President Vaclav Klaus addressed speculation that France might try to extend its current EU presidency and not allow the Czechs to take over in 2009 as planned.

"I believe that if this government is in charge of the presidency (...) it will have a more rational opinion on the financial crisis than most other European countries," said Klaus who had called Sarkozy's steps in the crisis "old socialism" earlier this week.

In recent days, German media have also reported that Germany's neighbors are looking to Chancellor Angela Merkel to rein Sarkozy in.

"Several influential politicians are counting on Germany to persuade Sarkozy to back off and agree emergency regulations for the euro zone instead," newspaper Frankfurter Allgemeine Zeitung said in an editorial. The paper added that Sarkozy's euro zone "economic government" was yet another move that would bypass existing EU institutions.

Citing diplomatic sources, business daily Financial Times Deutschland said leaders including Italian Prime Minister Silvio Berlusconi, Spain's Jose Luis Zapatero and European Commission cheif Jose Manuel Barroso tended to avoid confronting Sarkozy themselves.

"They prefer to seek out the (German) chancellor and ask her to talk Sarkozy out of one or two of his ideas," it said.

German news weekly Der Spiegel said Germany viewed France's proposal for an "economic government" as part of a struggle over which model should dominate in Europe -- the social market economy or the state-controlled economy.