European Monetary Crisis Signals Political Crisis

August 08, 1993|By EDUARDO CUE

Paris. -- They smiled broadly and shook hands forcefully, the best of friends who had just come through a difficult moment together.

French Finance Minister Edmond Alphandery and his German colleague, Theo Waigel, were there. So was Bundesbank President Helmut Schlesinger. Yet behind the smiles and good-humored jostling a simple fact of overwhelming significance for the future of Europe remained -- the French-German marriage that has served as the cornerstone of European unity for three decades is on the rocks and could be heading for a nasty divorce.

The occasion was a previously scheduled meeting of the French-German Economic and Financial Council just two days after officials from both countries, in an effort to halt the massive speculation against the franc and save the European Monetary System, essentially allowed its member currencies to float.

Despite the public claims of success, analysts and politicianagreed that the latest crisis had derailed, and perhaps permanently blocked, the drive led by Paris and Bonn to create a single European currency among the 12 nations of the European Community. Even more important, the very survival of the French-German alliance is now clearly at stake.

For while last week's crisis within the EMS drew the world'attention to the increasing split between Paris and Bonn, the fundamental differences between Western Europe's two leading powers have in fact been building since the collapse of the Berlin Wall in 1989 and the subsequent reunification of Germany.

As foreign exchange markets returned to normal by week's end and speculators called a cease-fire on their attacks against the franc, the fundamental question was whether France and Germany can overcome their difficulties and renew their efforts to create a united continent or whether the end of the Cold War has led to a divergence in the way each country perceives its vital interests.

"The Germans no longer need to subsidize the rest of Europe because the goal of doing that -- reunification -- has been obtained," Alexander Adler, an expert on Eastern Europe who teaches at the French Military Academy, said in an interview. "Europeans have not reconciled themselves with the key fact that Germany as an independent nation is back again."

Mr. Adler argues that the French-German marriage began with the first oil shock in 1974, when Paris and Bonn wanted stability and good relations with the Soviet Union and entertained serious doubts about the capacity of the United States to lead the West.

"That friendship was buried by [President Francois] Mitterrand in 1989 when he failed to clearly support German reunification," Mr. Adler says.

In fact, relations between the two countries have steadily deteriorated since the 1989 reunification despite the regular incantations of good will from both Mr. Mitterrand and German Chancellor Helmut Kohl.

The fact is, however, that today Paris and Bonn are at odds over every major international issue ranging from policy in the former Yugoslavia to trade negotiations and relations with Washington.

The fiasco of European policy toward the war in the Balkans may have the most serious long-term consequences, setting back efforts to construct a common foreign and defense policy among European Community members and forcing them to admit they cannot do anything significant in the world without the help of the United States.

The French and other Europeans now bitterly blame Bonn for pushing them into early diplomatic recognition of Croatia and Slovenia. They argue that the move only led to a spreading of the war and left the community without any other diplomatic cards to play against the Serbs.

Paris and Bonn are also at odds over the attitude Europe should take toward the stalled world trade talks. Germany, under pressure from its powerful industrialists eager to take advantage of wider markets, has urged a rapid conclusion to the negotiations. France, equally under pressure from its powerful farmers' lobby, has categorically rejected the Blair House agreement on agricultural subsidies and threatened to veto the entire trade package unless its demands are met.

"We asked the Germans to help us in this matter, and we have the impression that they are pushing us to accept the agreement with the United States," an official in Prime Minister Edouard JTC Balladur's office remarked.

The monetary crisis, which has been building for months and came to a head last week after the independent Bundesbank failed to lower its key intervention rate, is likely to remain the symbol of the growing Franco-German split for years to come.

Independent analysts such as author Alain Minc point out that France greatly benefited from the reunification of Germany and Mr. Kohl's decision to finance the reconstruction of the former East Germany through borrowing rather than through higher taxes. Indeed, French exports to eastern Germany soared between 1990 and 1992, giving the French economy a tremendous boost.

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