Franco-German relations have always been at the core of Paris’ European policy. With the 2019 Aachen Treaty, Emmanuel Macron and Angela Merkel built on the 1963 Elysée Treaty and further strengthened their relations. Since the Covid-19 crisis, however, Paris has found itself more aligned with Rome than Berlin in many respects, as shown by a number of economic indicators. France’s average growth rate before the pandemic (2015-2019) was around 1.6%, just a bit lower than Germany’s (1.7%) and higher than Italy’s (1%). But when Covid-19 hit Europe at the beginning of 2020, France and Italy were among the worst-affected EU countries. In 2020, their GDP dropped by 7.9% and 8.9%, respectively, while Berlin managed to limit its fall to 4.6%. The effect of the pandemic on the labor market further shed light on the similarities between France and Italy: unemployment rates reached 7.9% in France and 9.8% in Italy in December 2020, with Germany at just 4%. The picture looks even more worrisome when it comes to youth (under-25) unemployment rates with Paris and Rome at 20.5% and 31.1%, respectively, and Germany at a much more sustainable 7.9% after the first year of the pandemic. Last but not least, there is public finance. Due to high public expenditures to cope with the health crisis, EU countries’ debt skyrocketed in 2021, particularly in Italy and France, with Paris (116%) exceeding the 100% debt-to-GDP threshold for the first time, joining a chronically highly-indebted Italy (155%), and staying miles behind Berlin’s 73%.
These similarities have further brought together Paris and Rome, to the point that their pre-Covid tensions – including the gilets jaunes in 2019 and migration policies – look like a distant memory. In this new post-pandemic economic landscape, Mario Draghi and Emmanuel Macron chose to forge closer ties by signing the Quirinal Treaty in November 2021. Paris has also shown willingness to support Rome’s position vis-à-vis the Stability and Growth Pact (SGP) reform. The SGP was suspended in March 2020 amid concerns that EU fiscal rules could hinder governments’ attempts to tackle the pandemic. Earlier, in February 2020, the European Commission had kick-started a discussion around the reform of the EU economic governance. This issue became even more pressing after 2020, with the need to boost the recovery and fuel investments in strategic sectors. The SGP suspension is due to last until the end of 2022 (though it may be postponed once again because of the war in Ukraine), and Macron aims to find a preliminary consensus by the end of France’s six-month Presidency of the EU Council in June 2022. To this end, he is trying to attract Germany to the “anti-frugal” front. Macron was successful in this move in 2020, when he secured Angela Merkel’s support for the Next Generation EU (NGEU). In December 2021, with Merkel due to leave office and Olaf Scholz about to begin his Chancellorship, Emmanuel Macron and Mario Draghi signed a joint letter to the Financial Times where they outlined their views on the reform of the EU economic governance. Public debt levels must decrease, they wrote, though this should not be achieved through unsustainable cuts to government expenditure and higher taxes, which would bring a number of EU member states to their knees. In addition, they pointed out, the twin transitions (digital and green), together with the European objective of greater strategic autonomy, require substantial investments; as such, Member States should be given enough fiscal leeway. In fact, according to estimates from the European Commission, €520 billion are needed annually to meet the EU 2030 climate and environmental policy goals while the digital transformation calls for €125 billion per year.
With the outbreak of the war in Ukraine, France and Italy have found themselves on the same side once again, with Macron asking for new common debt to fund EU members’ defense expenditure. No decision was taken on this at the extraordinary Versailles Summit in March 2022 because the meeting agenda was dominated by the conflict in Ukraine, which eclipsed discussions around economic governance. Though talks are still in their infancy, two fronts have already emerged: on the one hand, “frugal” countries (such as the Netherlands and, most importantly, Germany) deny the need to jointly borrow again from the markets for the time being because a large part of NGEU is still to be used; on the other, Italy and France believe national budgets cannot sustain trillions of euros in investments in strategic sectors and achieve the EU’s objectives in the environmental, technological, and defense realms.
Macron has already made it clear that he intends to keep the issue on the agenda. The Ukrainian crisis and, closely linked to it, the EU’s dependence on Russian gas have overshadowed the reform of European economic governance. Still, Italy should keep looking at France for support in the future debate on EU economic rules, as it has already done in the recent past. Of course, all this holds true if Macron wins the elections, with the question mark of the Italian elections next year.