In a stark display of Franco-German discord, Chancellor Friedrich Merz's government has firmly rejected French President Emmanuel Macron's latest plea for joint EU borrowing—commonly known as eurobonds—ahead of a pivotal European Union leaders' summit. The move highlights deepening rifts at the heart of Europe's economic powerhouse duo, just as the bloc grapples with lagging productivity and fierce global competition.The tension erupted on Tuesday when Macron's interview with six major European media outlets hit the wires. In it, the French leader called for bold new common debt issuance to supercharge investments in strategic sectors like defense, green energy, and artificial intelligence. "Europe must wake up," Macron argued, framing eurobonds as an "economic necessity" to keep pace with the United States' tech-driven boom and China's manufacturing dominance.
Without such measures, he warned, the EU risks becoming a "museum of past glories" rather than a forward-looking superpower.Berlin's response was swift and unyielding. Hours after the interview's publication, a senior German official close to Merz dismissed the idea outright.
"We think that, in view of the agenda [at the EU leaders summit], this distracts a little from what it’s actually all about, namely that we have a productivity problem," the official told Politico, speaking anonymously to share candid views. This rejection underscores not just policy differences but a broader philosophical divide: France's appetite for ambitious fiscal integration versus Germany's longstanding aversion to shared debt, rooted in its fiscal conservatism and memories of the 2008 financial crisis.The spat arrives at a delicate moment. EU leaders are set to convene Thursday for a two-day retreat at a castle in Belgium, where boosting competitiveness tops the agenda. No binding decisions are expected, but the gathering aims to forge consensus on priorities ahead of a full summit in Brussels next month.Germany's priorities, as outlined by officials, focus on pragmatic reforms: deepening the single market to ease cross-border trade, accelerating and expanding free-trade deals worldwide, and slashing bureaucratic red tape that stifles innovation and small businesses.Chancellor Merz, who assumed office last year amid Germany's economic slowdown, has sharpened his critique of the EU's status quo. Unlike Macron's interventionist bent—favoring subsidies, tariffs, and "strategic autonomy" in industries like semiconductors—Merz champions market liberalization. He's found unexpected common ground with Italy's right-wing Prime Minister Giorgia Meloni, who shares his push for deregulation over debt-fueled spending. This alignment signals shifting alliances in Brussels, where traditional Franco-German dominance is fraying.At the core of Berlin's stance lies frustration with the EU's Multiannual Financial Framework (MFF), the bloc's seven-year budget currently under negotiation for 2028-2034. "It is true that we need more investment," the German official acknowledged. "But to be honest, this belongs in the context of the Multiannual Financial Framework."
Merz's team wants a radical overhaul, arguing that the current setup squanders two-thirds of funds on "consumptive spending" in agriculture and regional cohesion policies—subsidies that prop up rural areas and poorer member states but do little for growth."We hope that the member states that are now calling for new funding will also participate in these reform efforts," the official pressed. "It cannot be that people call for more money but then fail to tackle the reforms." This is a direct jab at France and southern European allies like Italy and Spain, who benefit heavily from cohesion funds yet resist cuts. Germany's message is clear: No blank checks without structural changes.
The eurobond debate isn't new. First floated during the 2010-2012 eurozone debt crisis to mutualize debts across the 20-nation euro area, the idea was shot down by Berlin, which feared moral hazard—richer nations bailing out fiscally lax peers. A watered-down version emerged via the NextGenerationEU recovery fund post-COVID, which authorized €800 billion in joint borrowing. That experiment, now winding down, has fueled Macron's push for permanence. Yet Germany views it as a one-off, not a template."European over-indebtedness does not come without a cost," the official warned, evoking fears of inflation, higher interest rates, and eroded investor confidence.These tensions trace back months. Macron and Merz have clashed over trade policy—France's protectionism versus Germany's export reliance—and strategies for engaging U.S. President Donald Trump, whose tariff threats loom large. A file photo from June 2025 captures the trio—Macron, Merz, and UK Prime Minister Keir Starmer—posing amiably at a NATO summit in The Hague. But beneath the smiles, cracks were forming.Broader context amplifies the stakes. The EU economy grew just 0.8% last year, trailing the U.S. (2.5%) and even China (4.7%), per Eurostat data. Productivity stagnation, exacerbated by energy shocks from Russia's war in Ukraine and deindustrialization in Germany, has left factories idle and unemployment ticking up.
Tech giants like Nvidia and OpenAI dominate AI, while Europe's champions lag. Without action, analysts warn, the bloc could lose another decade.For Merz, the summit offers a platform to rally free-market allies. Success might mean commitments to digital single-market reforms, faster patent approvals, and trade pacts with Indo-Pacific nations. Failure risks entrenching divisions, weakening Europe's hand against external pressures like Trump's "America First" agenda.As leaders arrive in Belgium, all eyes are on whether pragmatism can bridge the Franco-German gulf. Macron's vision demands trust in collective debt; Merz counters with discipline and reform. The path forward may lie in compromise—perhaps targeted eurobonds tied to productivity-boosting conditions. But for now, Germany's "no" echoes loudly, a reminder that Europe's engine runs on consensus, not fiat.
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