Macron Pushes a More Integrated Europe, With Eye on Germany -- 2nd Update

By William Horobin in Paris and Marcus Walker in Berlin Features Dow Jones Newswires

French President Emmanuel Macron wants his voice heard as Germany forms a new government.

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Mr. Macron is due to flesh out his proposals for deeper integration of the European Union and its common currency, the euro, in a speech at the Sorbonne university in Paris on Tuesday. The timing of the speech, two days after Germany's elections, is aimed at influencing German Chancellor Angela Merkel's talks with potential coalition partners, French officials say.

The young French leader knows his ambitious calls for a deeper union between the euro's 19 members are controversial in Germany, and wants to set out France's position before politicians in Berlin start to discuss their future policy on Europe, they say.

The outcome of the tussle between the EU's two dominant nations will be central to the eurozone's future. Although the bloc's economy is finally enjoying solid economic growth after years of slow recovery, officials in Paris and Berlin say the euro's members' economies continue to diverge, leaving the region vulnerable to future turbulence such as the debt crisis that pushed the bloc to the brink of collapse in 2010-12.

Ms. Merkel's conservative Christian Democrats came first in Sunday's German elections but with a shrunken share of the vote. She is now exploring the scope for a governing coalition with the left-leaning Greens and the pro-business Free Democrats. Such an alliance would have to reconcile major ideological differences on Europe, as on many other issues.

The Free Democrats, known as the FDP, are particularly skeptical about France's push to create a shared eurozone budget to boost investment and fight against economic shocks.

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Ms. Merkel also has strong reservations about Mr. Macron's ideas, but she has expressed her willingness to talk about them.

Berlin officials say the chancellor doesn't want to embarrass Mr. Macron by flatly rebuffing him, because Germany is keen for him to succeed in his simultaneous efforts to overhaul France's economy.

"I'm not going to be ruling everything out in advance. We can have more Europe, but it has to lead to more competitiveness, more jobs, and more effectiveness of the European Union," she told a news conference on Monday. "Besides, we have to talk with the FDP about it first anyway."

Mr. Macron has previously said a budget for the eurozone should be worth several percentage points of the bloc's gross domestic product, and be funded by common borrowing as well as a portion of taxes that are currently national. He has argued that the eurozone's current design isn't stable enough to survive in the long term, and that it needs a fiscal union to absorb economic shocks, as well as a common finance minister to manage the central budget.

Such ideas have long been anathema to German center-right politicians in both Ms. Merkel's party and the FDP. The dominant view in Berlin is that the eurozone's future stability relies on its member countries reforming their national economies to make them leaner and more competitive, rather than on large public-spending plans at the European level.

The FDP was dismissive of Mr. Macron's proposals during the election campaign and is seen in Paris as the biggest foe of the changes Mr. Macron wants. On Monday, FDP leader Christian Lindner moderated the party's tone, saying he opposes lasting fiscal transfers between euro members, but that he is willing to talk about measures to boost investment in the eurozone, including within the existing EU budget.

France and others in Europe are watching closely to see who will control the German finance ministry in Ms. Merkel's next government. The FDP said before the elections that it would lay claim to the ministry, a major power center in setting the eurozone's finance policies. On Monday, FDP leaders said publicly that policies, not ministries, were their priority. Behind the scenes, the party is expected to push for the finance post, however.

Germany's current finance minister Wolfgang Schäuble, one of the EU's most influential figures in the past eight years, is known to want to continue in his job, and has the backing of his Christian Democrats. Mr. Schäuble is an advocate of stricter fiscal discipline in the eurozone but is seen as slightly more open than Ms. Merkel, or the FDP, to some of France's federalist ideas.

Mr. Macron has a lot riding on whether he can bend Berlin toward his federal European vision. The 39-year-old won France's presidential election promising skeptical French voters he could improve their lot in Europe through changes to the EU, rather than taking the bloc apart, as his main rival National Front leader Marine Le Pen had promised.

In his first four months in power, Mr. Macron has quickly pushed through unpopular measures at home that Paris hopes will boost France's economic performance and its political clout in Europe. Overhauls include spending cuts to bring France's deficit within EU rules, and changes to labor laws to make the country's job market more flexible.

The young leader's approval ratings have sunk swiftly as public support for those policies has proved limited. It isn't clear, however, that Mr. Macron's efforts at home are sufficient to convince Berlin to sign up to his European initiatives.

Write to William Horobin at William.Horobin@wsj.com and Marcus Walker at marcus.walker@wsj.com

French President Emmanuel Macron set out his vision of a more united Europe in a speech aimed at persuading Germany, where Sunday's election results could reinforce doubts about deeper integration in the eurozone.

Mr. Macron repeated his call for a common budget for euro members, an idea with little appeal for most of Germany's political class, but sweetened it with offers of cooperation in areas that could appeal more to Berlin, including migration, security and the environment.

The French leader timed his speech at the Sorbonne university in Paris to influence the postelection debate in Germany, where Chancellor Angela Merkel faces tricky talks to form a new governing coalition after a result that strengthened populist and EU-skeptic forces.

The outcome of the dance between the EU's two dominant nations will be central to the eurozone's future. Although the bloc's economy is finally enjoying solid economic growth after years of slow recovery, officials in Paris and Berlin say the euro's members continue to diverge, leaving the region vulnerable to future turbulence such as the debt crisis that pushed the bloc to the brink of collapse in 2010-12.

Ms. Merkel's conservative Christian Democrats, who won the elections but with a reduced share of the vote, have begun sounding out the left-leaning Greens and the pro-business Free Democrats, or FDP, about a three-way coalition.

Before the election the FDP was vocally critical of France's push for a large, central budget for the eurozone. Ms. Merkel and her party also have strong reservations, although the chancellor has avoided rebuffing the French leader.

The success of the populist Alternative for Germany party in winning 12.6% of the vote on Sunday could also turn Germany's political focus inward, as mainstream parties grapple with the antiestablishment, anti-immigration mood in part of the German electorate.

The 39-year-old French leader knows his ambitious drive for a deeper union between the euro's 19 members was already a hard sell in Germany. He praised Ms. Merkel's commitment to Europe and said he was confident she wouldn't give in to nationalist pressures.

"The majority the chancellor has accepted to build in the coming days and weeks will have to work with us for the next four years. I see this as an unprecedented opportunity," Mr. Macron said. "We won't agree on everything, at least not immediately, but we will discuss everything."

He began his speech with a call for wide-ranging overhauls of Europe's policies in areas such as defense procurement, corporate taxation, farm subsidies, digital infrastructure, carbon emissions, corporate taxation, border protection and asylum -- areas where deeper cooperation could appeal to each of the German parties now beginning coalition talks. Mr. Macron also revived France's call for a financial transaction tax to fund development aid.

He repeated his case for the eurozone to have a central budget, managed by a European finance minister.

"We need much more investment and we need means of stabilization to confront economic shocks," he said.

Both Ms. Merkel's conservatives and the FDP have a different view of what the eurozone needs, however. The dominant view in Berlin is that the eurozone's future stability relies on its member countries reforming their national economies to make them leaner and more competitive, rather than on large public-spending plans at the European level.

Senior FDP official Alexander, Count Lambsdorff praised Mr. Macron's speech as "brave, even if not all proposals will meet with the FDP's agreement." He welcomed France's call for more cooperation on defense, terrorism and refugees, but said a eurozone budget wouldn't make Europe stronger.

Leading Green member Cem Özdemir, seen as a possible contender to become Germany's next foreign minister, welcomed the speech unreservedly.

Ms. Merkel reiterated her skepticism on Monday but said she was willing to talk. Berlin officials say the chancellor doesn't want to embarrass Mr. Macron by flatly rejecting his overtures. Germany is keen for him to succeed in his efforts to overhaul France's economy.

"I'm not going ruling everything out in advance. We can have more Europe, but it has to lead to more competitiveness, more jobs, and more effectiveness of the European Union," Ms. Merkel told a news conference on Monday. "Besides, we have to talk with the FDP about it first anyway."

The FDP was dismissive of Mr. Macron's proposals during the election campaign and is seen in Paris as the biggest foe of the changes Mr. Macron wants. On Monday, FDP leader Christian Lindner moderated the party's tone, saying he opposes lasting fiscal transfers between euro members, but that he is willing to talk about measures to boost investment in the eurozone, including within the existing EU budget.

France and others in Europe are watching to see who will control the German finance ministry in Ms. Merkel's next government. The FDP said before the elections that it would lay claim to the ministry, a major power center in setting the eurozone's finance policies. On Monday, FDP leaders said publicly that policies, not ministries, were their priority. Behind the scenes, the party is expected to push for the finance post, however.

Germany's current finance minister Wolfgang Schäuble, one of the EU's most influential figures in the past eight years, is known to want to keep his job. Mr. Schäuble is an advocate of stricter fiscal discipline in the eurozone but is seen as slightly more open than Ms. Merkel, or the FDP, to some of France's federalist ideas.

Mr. Macron has a lot riding on whether he can bend Berlin toward his federal European vision. He won France's presidential election promising skeptical French voters he could improve their lot in Europe through changes to the EU, rather than taking the bloc apart as his main rival National Front leader Marine Le Pen had promised.

In his first four months in power, Mr. Macron has quickly pushed through unpopular measures at home that Paris hopes will boost France's economic performance and its political clout in Europe. Overhauls include spending cuts to bring France's deficit within EU rules and changes to labor laws to make the country's job market more flexible.

"I won't let anyone in Europe, given what we are doing in France, to say it is not legitimate for France to make proposals," Mr. Macron said.

The young leader's approval ratings have sunk swiftly as public support for those policies has proved limited. It isn't clear, however, that Mr. Macron's efforts at home are sufficient to convince Berlin to sign up to his European initiatives.

Write to William Horobin at William.Horobin@wsj.com and Marcus Walker at marcus.walker@wsj.com

(END) Dow Jones Newswires

September 26, 2017 13:53 ET (17:53 GMT)