Franco-German rift threatens to derail EU competitiveness summit

Serious disputes between Germany and France are overshadowing today’s (February 12) special European Union summit on competitiveness.

The objective of this informal gathering is to draft new measures to bolster the EU economy. Experts argue that the internal market requires urgent reform; currently, trade barriers between EU member states are equivalent to a 45% tariff on goods and a staggering 110% tariff on services.

According to German Foreign Policy, while some proposals have met little resistance, others remain deeply divisive. Chief among these are demands for preferential treatment for EU-made goods in public procurement and the issuance of joint EU debt to finance critical investments in high-tech sectors.

France supports both initiatives, while Germany rejects them outright.

Conversely, a consensus appears to be emerging on strengthening private pension systems to utilize deposits for investment, modeled after the Canadian pension fund system. While this move would expose pensions to new market risks, a joint Franco-German concept paper explicitly endorses the project.

Objective: The Capital Markets Union

The agenda for today’s special summit at Alden Biesen Castle in Belgium includes initiatives regarding a potential Capital Markets Union (CMU). One primary goal is to create a unified EU capital market capable of generating larger investments than are currently possible within individual member states.

This integration is expected to help the EU compete with the US in sectors such as startup financing. Last year, German and French finance ministers Lars Klingbeil and Roland Lescure commissioned a report on the matter, which was presented in mid-January.

The report’s authors—former German Finance Minister Jörg Kukies and former Governor of the Bank of France Christian Noyer—propose encouraging larger financial groups across the EU to engage in joint investments while leveraging private pension services.

According to the report, if private pension services are significantly bolstered, pension funds could be utilized to inject substantial capital into private companies. This would, inevitably, turn pensions into objects of speculation. Klingbeil has already begun efforts to strengthen these private pension frameworks.

Diverging paths toward a “sovereign and competitive” Europe

Klingbeil is currently drafting a ten-point plan to strengthen the capital markets union. “In light of global upheavals, we are focusing on a sovereign and competitive Europe,” the SPD politician stated, adding that “strong capital markets” are the key to achieving this.

Among the ten points proposed by the Federal Finance Minister is the EU-wide standardization of the legal structures for small and medium-sized enterprises. Until now, only the European Company (SE) designation existed. Additionally, the plan seeks to standardize insolvency laws and streamline bureaucracy, though specific details remain vague.

Klingbeil’s plan also includes initiatives to strengthen private pension services, aiming for the comprehensive use of pension funds for investment and the inclusion of associated risks. To implement this, Klingbeil intends to rely initially on the “E6 format”—comprising Germany, France, Italy, Poland, Spain, and the Netherlands—rather than the entire EU. According to the minister, this would represent a further step toward a “multi-speed Europe.”

Plans to abolish unanimity for a “multi-speed” Europe

European Commission President Ursula von der Leyen has also signaled clear support for a “multi-speed Europe.” In a letter sent to EU heads of state and government on Monday ahead of today’s summit, von der Leyen noted that while the primary goal should always be to “reach an agreement among all 27 member states,” no one should “hesitate to use the possibilities for enhanced cooperation provided for in the Treaties.”

Under the EU’s founding documents, closer cooperation in specific policy areas is permitted provided at least nine member states join forces. To date, this mechanism has rarely been utilized.

One model discussed in the past is “Core Europe,” a Germany-centered alliance that would allow the EU’s power center to pursue deeper integration than the states on the union’s geographic periphery. Recently, Wolfgang Ischinger, President of the Munich Security Conference, proposed such a “core Europe” for the EU’s foreign and potentially military policy.

Merz vs. Macron

The option for “different speeds” within the EU is a critical factor for the summit, as German and French proposals to increase competitiveness have once again diverged sharply.

Chancellor Friedrich Merz, who initiated the special summit, advocates primarily for strengthening the internal market, reducing bureaucracy, and pursuing deregulation. The specifics of the latter two points remain entirely undefined; however, there are indications that the EU must stop supporting “zombie enterprises” that are no longer fit for the modern age. Such a move could impact everything from labor protections to environmental standards.

Merz also supports the simplification of digital legislation, though it remains unclear whether this would affect data protection standards.

From the perspective of French President Emmanuel Macron, these measures are insufficient. Macron warns that the world is experiencing a “deep geopolitical rift” hitting the EU from two sides: rapidly accelerating competition from China and continuous pressure from the Trump administration in the US. In an interview published in four leading European daily newspapers, Macron warned: “If we do nothing, Europe will perish within five years.”

French demands: “Made in Europe” and eurobonds

Consequently, Macron advocates not only for deregulation and the diversification of foreign trade relations but also for “prioritizing European products.”

This concept is being discussed under the “Made in Europe” banner. It would require a minimum proportion of jointly produced goods in EU public procurement across at least three sectors: steel, eco-technology, and electric vehicles. For electric cars, the proposed quota is 70%, while for solar panels—where Chinese competition is most intense—it ranges between 10% and 20%. This demand is being championed most vocally by French EU Industry Commissioner Stéphane Séjourné.

Furthermore, Macron is pushing for “joint debt capacity,” or Eurobonds, to fund investment in key sectors. The French leader argues that the EU is under-investing in defense, security, technology, ecological transition, artificial intelligence, and quantum technology. In his view, the EU has no choice but to engage in joint borrowing to close the investment gap with the US and China.

Germany emphasizes national interest

The German government rejects these final two demands, citing national interests.

Berlin fears that introducing a minimum “Made in Europe” quota for procurement would trigger retaliation. EU exporters could find themselves at a disadvantage in procurement processes outside of Europe. As the EU’s largest exporter, Germany would be the most affected by any such restrictions.

Furthermore, Germany remains staunchly opposed to EU joint debt, symbolized by Eurobonds. Berlin’s rejection is not merely a matter of principle; Germany’s debt is only half that of France, allowing it to easily assume its own debt to stimulate investment. Moreover, Berlin calculates that such investments would primarily benefit German companies rather than EU firms in general.

Italy sides with Germany

Rome has aligned itself with Berlin, stating that now is not the time to discuss the European joint debt proposed by Macron.

Italian Foreign Minister Antonio Tajani stated on Wednesday that while the government generally recognizes the need for joint borrowing to invest in strategic sectors, there is no point in entertaining the idea while France and Germany remain in conflict over it.

“Instead of starting a debate on issues where no agreement can be reached, I prefer to find solutions on matters where various countries already agree,” Tajani told Sky TV. “If an agreement cannot be reached, there is no point in entering a discussion, even on issues we find positive.”

Italy continued to support EU joint debt even under the current Prime Minister, Giorgia Meloni. However, in recent weeks, Meloni has drifted away from Macron’s “Made in Europe” proposals—which favored European companies in procurement and local content rules—and has moved closer to Merz.

Rome makes no secret of the fact that its cautious stance on discussing joint debt at the EU leaders’ meeting is a strategy to avoid tension with Germany. “I have always supported Eurobonds, but currently there is no agreement between Germany and France,” Tajani said. “Starting a discussion and dividing ourselves is pointless. We must find what unites us and move forward.”