There is no magic wand for Europe’s problems

Alan Philps says that Germany has to accept that it must subsidise weaker EU economies rather than lecturing them on balanced budgets.

French president Emmanuel Macron reacts after a meeting and family photo with the International Olympic Committee Evaluation Commission at the Elysee Place in Paris. Gonzalo Fuentes / Reuters

There is magic in the air in Berlin, according to a German official. A new star has been born in Europe and confidence is returning after seven difficult years.

These are surprising words – European integration is widely seen as a failing project, beaten down by low growth and high unemployment, coupled with the threat of terrorism and the unsettling factor of mass immigration, not to mention a president in the White House who appears to see the European Union as a hostile trading bloc.

The immediate cause of the rise in optimism is Emmanuel Macron, the centrist new president of France whose electoral victory and message of hope seems to have stalled the rise of populism that some had feared would dominate Europe. The populists of the hard right are in abeyance, and the German Chancellor, Angela Merkel, is set for re-election to a fourth term in September.

Unusually for such a serious-minded politician, it was Mrs Merkel who set tongues wagging about magic. Welcoming Mr Macron to Berlin on his first full day in office, she quoted the writer Hermann Hesse, “Magic dwells in each beginning”. The new beginning was taken as a sign that Germany and France would be marching in lockstep to revive the fortunes of the EU and its half-completed common currency, the euro.

But Mrs Merkel added a cautionary note: “Of course, this magic only remains if there are results.” While offering the most fulsome verbal support to Mr Macron’s plans to revive the French spirit and shore up the EU for the future, she made it clear she will be judging the 39-year-old by what he can achieve, not what he says.

It is churlish to mention another moment of magic in Berlin: In 2008, when Barack Obama, then a candidate for the US presidency, held a rock concert-style rally in the German capital. It defined his hopes for ending George W Bush’s unsuccessful wars and opening up a new era of respect for the rule of law. The European love-in with Mr Obama escalated to such an extent that he was awarded the Nobel Peace Prize before he had completed a year in office when his peacemaking was still at the verbal stage.

Mr Obama achieved less than he set out to do, but the Europeans knew he was a liberal whose heart was in sympathy with their ideals of democracy and human rights. Mr Trump is from the other end of the political spectrum and finds it easier to talk to strongmen, from Vladimir Putin to the Philippines president Rodrigo Duterte, than with Mrs Merkel, with whom his meeting was notably frosty.

This change in Europe’s external landscape explains why Mrs Merkel was so keen to promote the idea of a new start for the EU.

The old ally in Washington seems less favourably disposed while Mr Putin, though he is no Stalin, has a clear interest in undermining the EU to bolster Russia’s position in the territories to its west that it lost with the collapse of the USSR. If Brussels ceases to be the magnet of attraction for countries of central Europe and the Balkans, Russia may find willing ears for its attempts to rekindle old relationships.

At the same time the rise of China has made Europe feel under siege. The sheer size of the Chinese economy and the resources available to state-backed corporations make leading European companies easy pickings. Against the grain of their open-market philosophy, EU leaders are looking for a right to veto state-backed Chinese takeovers of technology companies.

Mr Macron wants to go further and is calling for a “buy-European” act to protect EU firms from outside competition.

In this context the old European way of muddling through, hoping for the best, and dealing with problems only when they reach crisis point is clearly not good enough. Both Mrs Merkel and Mr Macron accept this. But there are serious problems.

The first is that Mr Macron, having no established party behind him, may turn out to be a lame duck president from the off. This is not certain – the president’s persuasiveness should not be underestimated – but no lesser person than his prime minister, Edouard Philippe, has suggested that Mr Macron would struggle to complete the revolution in French politics he has promised. “His path will be narrow and risky. One has a hard time imagining the old system letting it happen easily,” the future prime minister wrote in a newspaper column during the election campaign.

The second is that reforming the Byzantine structures of the EU may be beyond him, just as ending wars in the Middle East was beyond Mr Obama. He wants to start by reforming the eurozone, the bloc of 19 members of the union which use the common currency.

The Macron plan is for greater fiscal integration, with its own budget and finance minister and parliamentary oversight – in fact more like a nation state than a group of countries with different economies. The logical conclusion is that the countries’ borrowing should gradually be pooled in “Eurobonds”. The weaker economies would get a better interest rate, but the German taxpayer would shoulder some of the risk.

This is a non-starter from Mrs Merkel, who cannot sell such a project to her voters until there are clear signs that economies such as Greece and Italy have swallowed the austerity medicine and improved their public finances. This is not happening, and for a good reason: in any unification project, the centre tends to suck in wealth from the periphery, which is exactly what is happening with Germany.

In the end Mrs Merkel will have to accept that Germany must subsidise some of the weaker economies rather than lecturing them on balanced budgets. Despite all the talk of a new beginning, there is no magic wand to make this happen. It requires painful choices in Berlin and elsewhere.

Alan Philps is a commentator on global affairs

On Twitter: @aphilps