Dec. 8 (Bloomberg) -- In 1989, France’s Francois Mitterrand and Britain’s Margaret Thatcher maneuvered to block German reunification. Their concerns that the expanded nation would prove an irresistible force are now coming to pass.
As Europe’s financial crisis intensifies after two years and 1.1 trillion euros ($1.5 trillion) of short- and long-term euro- area government debt due in 2012, German Chancellor Angela Merkel has forced French President Nicolas Sarkozy into retreat and left U.K. Premier David Cameron on the sidelines.
Berlin’s dominance has shaken the Franco-German equilibrium at the heart of the post-World War II balance of power. Debt contagion and slumping growth have driven French borrowing costs to a euro-era record against Germany. The result may be a remade political map with even Poland, invaded by Adolf Hitler in 1939, calling for a stronger German role.
“We are an unwilling leader,” Wolfgang Ischinger, a former German ambassador to Britain and the U.S. and now chairman of the Munich Security Conference, said in an interview. “We have been trying for 50 years not to lead. Germany will have to grow up now. It’s new and there will be a learning curve and mistakes will be made.”
Merkel is heading into a European Union summit starting tonight in Brussels with a debt-crisis blueprint that emphasizes German priorities of more forceful policing of budgets and moves toward a fiscal union with a minimal role for the European Central Bank. Sarkozy backed it and won concessions to water down some German demands, while giving up France’s aim to bring the ECB to the forefront of the fight.
“What’s right on one side of the Rhine is right on the other side of the Rhine,” Sarkozy said, referring to the 1,320 kilometer (820 mile)-long waterway that provides their border. “History and geography have made France and Germany rivals or partners,” he said in a Dec. 1 speech in Toulon, France.
The nations fought three wars between 1870 and 1945, and after World War II, their leaders pushed European integration to prevent a fourth from ever occurring.
The first step in creating today’s 27-nation EU was the European Coal and Steel Community, set up in 1951 to ensure joint control of the resources of war and make armed conflict “materially impossible,” according to Robert Schuman, the then French foreign minister and an architect of European unity.
Yet four decades later, German unification being forged on the Berlin Wall’s rubble was a bridge too far for Mitterrand and Thatcher, according to a previously classified letter describing a Jan. 20, 1990, meeting of the two leaders in Paris, written by Thatcher’s private secretary, Charles Powell and posted on the Margaret Thatcher Foundation’s website.
“This would confront us all with a major problem,” Thatcher was quoted as saying. Mitterrand said West German “agents” were agitating in the east for unity and “Germany could if it wished achieve reunification, bring Austria into the European Community and even regain other territories which it had lost as a result of the war. They might make even more ground than had Hitler.”
Chancellor Helmut Kohl, who guided the two Germanys to unity, complained in his memoirs that Mitterrand played a “double game” on unification and that the French leader felt he didn’t need to express opposition in the belief that Soviet leader Mikhail Gorbachev would never allow it to happen.
“I didn’t realize it at the time: Mitterrand and Margaret Thatcher were betting that Gorbachev would never accept a united Germany in NATO,” according to Kohl’s 2009 book, Vom Mauerfall zur Wiedervereinigung (From the Fall of the Wall to Reunification). “They totally deluded themselves.”
Underscoring the intensity of Mitterrand’s doubts, the memo quoted him saying the prospect of unity had turned Germans into “the ‘bad’ Germans they used to be” and “they were behaving with a certain brutality.”
Kohl did agree to give up the deutsche mark over public opposition as France sought to contain Germany in a political and monetary straitjacket. The Maastricht Treaty, two years after German unity in 1992, mapped the path toward monetary union. The euro was established in 1999 and bank notes and coins came into circulation in 2002.
Mitterrand opposed the creation of a “mark zone,” Hubert Vedrine, his spokesman at the time of unification and subsequently foreign minister, said in an interview.
German economic growth has picked up steam since 2009, outpacing France. Germany, with a population of 82 million compared with France’s 65 million, expanded 3.6 percent last year compared with France’s 1.4 percent.
“One of the most profound consequences of the euro crisis is that France has almost been marginalized,” Gary Smith, executive director of the American Academy in Berlin, said in an interview. “The model of Franco-German balance of power has become obsolete and Germany and others have to rethink the EU.”
The German ascent has sparked grumbling throughout Europe and revived invective in countries such as Greece where some politicians compared German demands for austerity to a Nazi past.
“There’s a lot of resentment, just look at the swastika caricatures in Greece,” said Ischinger, who was also a deputy German foreign minister.
Sarkozy has been criticized by political opponents for giving in to Merkel’s policies. “It’s Merkel who decides and Sarkozy who follows,” said Francois Hollande, the Socialist Party presidential candidate who polls show would beat the incumbent in France’s May 2012 elections.
Arnaud Montebourg, a Socialist lawmaker, said Merkel’s policies were a “German diktat in the euro zone.”
The hand wringing may be most pronounced in Germany as nationalist sentiment seeps into the political mainstream.
Merkel’s Christian Democratic bloc leader in parliament, Volker Kauder, hailed what he said is the new European acceptance of the Chancellor’s debt-crisis prescriptions.
“All of a sudden, German is being spoken in Europe,” Kauder said in a speech at a CDU party congress in Leipzig on Nov. 15. “Not the language but in accepting the instruments that Angela Merkel fought for so long -- and with success.”
That sparked a backlash with former Chancellor Helmut Schmidt saying such comments fuel doubts on the “reliability” of German policies.
“Damaging German national muscle-flexing” has been a characteristic of the Merkel coalition, Schmidt, 92, who led West Germany from 1974 to 1982, said in a speech on Dec. 4 to his opposition Social Democratic Party in Berlin.
Still, Merkel has leaned on Sarkozy to build bridges, even if he is becoming the junior partner.
“We went from Franco-German parity to a German dominance,” France’s Vedrine said. “But this situation is embarrassing Germany a little bit, it is seeking therefore the Franco-German couple to shun any finger pointing.”
Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said that Sarkozy is “frantically” seeking to position himself as close to Merkel as possible.
“The bond yield spread shows that markets understand what we already knew politically: There’s no more equality between Berlin and Paris,” Erixon said in an interview. The terms of Franco-German relations are now dictated by Germany.’’
The extra yield demanded to lend to AAA rated France for 10 years instead of Germany reached 200 basis points on Nov. 17, the widest since 1990. The risk premium is now around 110 basis points. French borrowing costs are about a full percentage point above the top-rated U.K.
For her part, Merkel, in a speech to parliament in Berlin on Dec. 2, rejected claims that Germany is dictating policy.
“It’s absurd to say that Germany wants to dominate Europe in any way,” Merkel said.
Concerns of German hegemony come as the nation, the world’s second-biggest exporter after China, turns away from Europe as a source of growth.
German exports in 2011 will probably rise 12 percent and breach the 1 trillion euro level for the first time as demand from emerging markets offsets waning sales in Europe, the BGA Exporters and Wholesalers said on Nov. 29.
Porsche SE’s biggest market is the U.S. China, its No. 2, is about to overtake sales in America.
In contrast, French carmaker PSA Peugeot Citroen’s home market is its biggest, with 29 percent of its unit sales in the first half of this year, compared with 12 percent in China and none in the U.S.
Bernard de Montferrand, who served as French ambassador to Germany from 2007 to 2011, said France has lost momentum and “a great share of its competitiveness.”
“Is Germany imposing its discipline on its partners?” Montferrand said in a telephone interview. “So be it. Is economic common sense a German product or a bad thing? No, it’s a universal rule. And European nations, including France, had departed from good management.”
The sea change from the French stance in the run-up to the 1990 German reunification is reflected elsewhere in Europe as geopolitics take a back seat to solving the debt crisis. Take Poland, where the German invasion in 1939 triggered the British and French declaration of war against the Nazis.
As Germany reunified, Poland feared Kohl wouldn’t recognize the Oder-Neisse Line -- the post-war border between Germany and Poland -- and that Germany might make claims on its former territories now part of Poland, including Silesia, Pomerania and East Prussia. Kohl confirmed the Oder-Neisse line and formally gave up any possibility of such claims in 1990.
Polish Foreign Minister Radoslaw Sikorski has urged Germany to play a bigger role in saving the euro.
“I will probably be the first Polish foreign minister in history to say this, but here it is: I fear German power less than I am beginning to fear its inactivity,” Sikorski said in a Nov. 28 speech in Berlin. “You have become Europe’s indispensable nation. You may not fail to lead: not dominate, but to lead in reform.”
Russia too, wants Germany to “take a leadership role in Europe,” said Sergei Karaganov, head of the Moscow-based Council on Foreign and Defense Policy.
“Despite our differences with the Europeans, the EU has been the most comfortable partner for Russia in its centuries of history,” Karaganov said in an interview. “Now, unless Germany saves it, we will face a new threat from Europe as a factor of instability.”
Horst Teltschik, who served as Kohl’s deputy chief of staff and helped negotiate German unification, agrees.
“All EU states know that Germany is the strongest member in the bloc,” he said in a telephone interview. “As a German, I would never talk about a leadership role in the EU. Everybody knows that. So there’s no need to talk about being the biggest or the strongest or whatever. Germany just must do it.”
--With assistance from Helene Fouquet in Paris, Alexander Webb in Frankfurt, Henry Meyer in Moscow and Chris Malpass and Andreas Cremer in Berlin. Editors: James Hertling, Vidya Root
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