Thoughts on the Franco-German friendship Guest contribution by Banque de France Governor François Villeroy de Galhau and Bundesbank President Joachim Nagel published in the Frankfurter Allgemeinen Zeitung and Le Figaro
What does friendship mean? It does not mean always seeing things the same way, but an ability to stake out the common ground. France and Germany are efficient friends. By working together, our two countries have helped move Europe forwards. We would like to devote the following lines to illustrating the essence and strength of the French-German friendship through two topics that are at the heart of our daily work: economics and money.
More than 60 years have passed since President Charles de Gaulle and Chancellor Konrad Adenauer signed the Élysée Treaty. But the close cooperation between our countries began even earlier than that: In 1950, French Foreign Minister Robert Schuman proposed the Coal and Steel Community, which was intended to unite French and German heavy industry and secure peace. The alliance forged between our two countries was a stepping stone on the path towards European integration: Belgium, the Netherlands, Luxembourg and Italy joined the Coal and Steel Community. In 1993, the economic integration of our continent led to a common internal market. At the turn of the millennium, it achieved a further high point with the monetary union. Today, the euro is the currency of more than 340 million people in 20 countries.
From 2009 onwards, the global financial crisis developed into the sovereign debt crisis in the euro area. Some highly indebted euro area Member States faced the prospect of losing access to capital markets, and there was a danger that the euro area might break up. Instead, Europe became more robust: Member States set up a rescue shield, created the European Stability Mechanism and the banking union. The resolution of the crisis was the achievement of many. At the same time, it testifies to the strength of the Franco-German friendship. For our countries held different opinions. France favoured a greater pooling of debt, whereas Germany emphasised the responsibility of the individual Member States. But in a dialogue based on trust, our governments managed to find compromises. France and Germany reached yet another fruitful compromise in 2020 when, in the face of the coronavirus crisis, it was decided to create the Next Generation EU fund worth €750 billion and invest in the future of Europe.
We – the governors of the 20 euro area national central banks and the members of the Executive Board of the ECB alongside Christine Lagarde – likewise treat each other with respect and trust on the Governing Council of the ECB. That is where we make monetary policy decisions. Our objective is price stability, i.e. an inflation target of 2% in the medium term. With inflation standing at 2.9%, but falling fast as this article went to press, we have not yet reached that target. Inflation hits the weakest members of society especially hard, and it also makes long-term investments in the future sustainability of our economies more difficult.
There are several reasons why inflation is too high. Did our expansionary monetary policy of previous years contribute to the rise in prices? Between 2013 and 2020, we saw that inflation was too low, sometimes even negative. So until recently, it was our task to ensure that prices rose more strongly. What is crucial is that we also align our actions today with the inflation target of 2% - and that is what we are doing: Within the space of 14 months, we have raised interest rates by 450 basis points, more rapidly and more sharply than ever before. Both of us did not always completely agree on all the steps that were taken, but together with our colleagues on the Governing Council of the ECB we were able to reach a decision. And inflation is coming down significantly.
The challenges facing Europe and the euro are mounting and becoming more complex. In addition to long-term tasks arising from climate change, our ageing population and digitalisation, we have to tackle geopolitical crises. Players from different parts of the globe are making their voices heard. Against this backdrop, the Franco-German friendship is not losing any of its significance: quite the opposite. To divide us would be to condemn us, and to condemn Europe. But if we speak with a single voice, our words will carry more weight. And if Europe manages to speak with one voice, perhaps based on the Franco-German nucleus, it will have an important role to play in the world.
Economic integration has driven the unification of Europe. We still need to make a great deal of progress in this field: a genuine capital markets union to finance the green transition – which we advocated together a year ago; common and balanced rules on fiscal policy – the euro area needs a stability framework – ; a digital single market, which would combine regulation, financing and talent development to leverage the unique advantage of our European size into European innovation.
But the Russian war against Ukraine shows us with brutal force that integration is no guarantor of peace. A stable Europe benefits strongly from close coordination between France and Germany beyond economic policy. It is true that our countries sometimes hold different opinions in areas such as foreign affairs, security and energy. We welcome the compromise reached in October to reform the EU’s electricity market. This is just one more example of France and Germany’s enduring ability to find common ground. If our friendship maintains this quality, we can carry on helping Europe to move forwards. We are both wholeheartedly committed to this crucial objective.
 J. Nagel, F. Villeroy de Galhau, Fostering European unity: time for a genuine capital markets union, November 2022.