Jousting Egos Germany and France Compete for Role of Financial Savior
As tremors shake markets around the world, European partners Germany and France have gone separate ways in fighting the crisis. Sarkozy wants to bring banks and threatened industries under the government's protection, but Merkel is opposing such state intervention.
Nicolas Sarkozy has a talent for timing. The French president knows exactly when to shine a spotlight on himself. Timing, one of the indispensable requisites of statesmanship, is critical in politics.
On Tuesday of last week, the time had come, once again, for a forceful appearance. Sarkozy, wearing a dark suit and a purple shirt, stood in front of the members of the European Parliament in Strasbourg, insisting on the need for a "European economic government." It sounded like high diplomacy, at least until the president mentioned his first concrete proposal. In the future, Sarkozy said, governments, through state-owned funds, should hold direct stakes in important companies, not just banks. "We cannot continue the way we have been going," he told his audience.
Sarkozy is also a man of quick decisions. Two days later, the first fund in France was already a done deal, and it is expected to have been established by the end of the year.
The climate is undoubtedly right for far-reaching proposals. Four weeks ago, no responsible politician would have dared to call for the nationalization of entire industries, and he would have been ridiculed or pronounced insane if he had done so. But then the financial crisis still appeared to be an American problem.
German Chancellor Angela Merkel and French President Nicolas Sarkozy: The political class has been upgraded to savior of the financial system.
These unheard-of sums have boosted the self-confidence of those who made the money available. Suddenly there is talk of the return of government as a bastion of hope for citizens. The question now is whether politicians will give in to their call for action and intervene elsewhere. German members of parliament are already beginning to question plans to take the national railway Deutsche Bahn public because, as they now believe, privatization is no longer appropriate.
But the crisis is not over. Last Friday alone, the DAX lost 5.0 percent of its value, the Nikkei Average lost 9.6 percent and the Dow Jones was down 3.6 percent by the end of the trading day. All in all, market capital worth $1.5 trillion was wiped out in the course of last week, and there is no reason to believe that improvement is on the way. Some economists already believe that Germany is in recession.
But Berlin's first reaction to the French president's nationalization plans was an icy silence, followed by Economics Minister Michael Glos's terse remark that the proposal contradicts "all successful principles of our economic policy." It is difficult to express disapproval more clearly.
Last week also marked a return to normalcy, which stands in sharp contrast to the turmoil in the markets. Only a few days after a series of rounds of hectic summit diplomacy, politicians seem to have established sufficient distance between themselves and the crisis so that further joint action seems unnecessary. Although political leaders are now touting the need for a new global financial order in their press conferences, national interests have taken center stage once again within the individual governments.
The problem with Sarkozy, from the Chancellery's standpoint, is that he cannot be trusted. When he speaks of a "European economic government," his listeners in Berlin translate this to mean "economic government under French leadership." When he calls for state-run economic programs, they interpret his words as an attack on the European Union's Maastricht Treaty, which sets clear debt limits for countries.
As the Germans see it, the thrust coming from Paris marks the beginning of a conflict over which model is to dominate Europe in the future, that of the social market economy, which keeps the government out of the business of running companies to the greatest extent possible, or the French model of a government-controlled economy. "Sarkozy wants to seize the opportunity to shift the economic and political balance in Europe," says an advisor to Chancellor Merkel.
In truth, Sarkozy is part of a long tradition of presidents who believe that the state -- that is, they themselves -- is best equipped to run the economy. Statism has always been a strong force in France, no matter which party the man in the Elysée Palace belongs to.
- Part 1: Germany and France Compete for Role of Financial Savior
- Part 2: An Urgent Need for Improved Cooperation