Page last updated at 00:50 GMT, Thursday, 25 March 2010

Greek crisis exposes France-Germany rift

By Oana Lungescu
BBC News, Berlin

Left to right: German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and French President Nicolas Sarkozy at Brussels summit - 11 February 2010
Germany and France want to avoid the Greek crisis destroying the euro

There's a sense of urgency ahead of the EU summit in Brussels, as Germany and France frantically negotiate how to overcome the worst crisis in the history of the euro.

But the Greek crisis has also exposed a deeper rift between Berlin and Paris over how to run Europe's economy.

In a glass tower-block in the centre of Berlin, an IT expert showed me how to compose my own song from scratch - with a little help from the Magix Music Maker, a German multimedia programme.

Fifteen years ago, Magix came up with the idea of putting digital editing within everybody's reach. It has become a hit all over the world.

What started as a five-man team now employs 300 people and exports as far as the US and Japan.

Magix is typical for Germany's Mittelstand - the thousands of small companies, called the "hidden champions", which have helped the country rebound from the economic crisis in better shape than the rest of Europe.

International PR manager Tom Schwarzer summed up Magix's magical formula.

"We take over 30% of our revenue and reinvest again into innovation," he said.

"Especially in times of crisis we need to be very upfront with new technologies and to try to put new technologies into programmes which everybody can afford and understand."

Bitter row

It is not just innovation that has made Germany, Europe's biggest economy, a world export champion second only to China.

Described as the sick man of Europe only a decade ago, the country has gone through painful welfare reforms and kept labour costs low.

Claire Demesmay of the German Council on Foreign Relations
I think the euro could break up if France and Germany continue to go in very different directions
Claire Demesmay
German Council on Foreign Relations

But there is growing concern that Berlin's export strength is hurting its European partners.

So when French Finance Minister Christine Lagarde publicly called on the Germans to start spending a bit more, it sparked a bitter row.

"In a crisis situation everyone needs to make an effort," Mrs Lagarde told French RTL radio.

"I think that Germany could take measures to reduce its taxes in order to encourage internal consumption. This could help us in France export our products to Germany, which is our biggest economic partner."

Berlin has little time for such criticism.

'Do like us'

Last week, the Economy Minister Rainer Bruederle proudly unveiled Germany's pavilion at the Shanghai World Expo, opening in May.

Covered in a silvery mesh that adapts to temperature change, the large futuristic building is designed to showcase "Hi-Tech Made in Germany".

Germany's pavilion at the Shanghai World Expo - 11 March 2010
Germany wants to showcase its hi-tech goods at the Shanghai World Expo

So when I asked Mr Bruederle what he would tell his French colleague, he came up with a blunt metaphor about competitiveness.

"Dear Christine, do like us," he said with a smile.

"Build up your strength, you're just as good. It's like a 100-metre race. You can't give those in second and third position a better chance by putting lead into the jogging shorts of the fastest runner.

"What we can do, our French friends can do too. So run along, it's worth it!"

Mrs Lagarde would be reassured to see the bustling Galeries Lafayette, the Berlin branch of the French food and fashion emporium.

Over a delicious tarte au citron in the basement cafe, I talked about the Franco-German love-hate relationship with Claire Demesmay.

In charge of the Franco-German programme at the German Council on Foreign Relations, she is something of a French import in Germany herself.

"The French see the Germans as a bit selfish," she said.

"But the Germans don't understand why the French want to change the European rules. I think the euro could break up if France and Germany continue to go in very different directions."

Safety net

In recent days, Berlin and Paris have been edging closer together to avoid the Greek crisis pushing the euro over the brink.

After intensive phone calls with Chancellor Merkel, President Sarkozy has warmed to the German plan to give the IMF a key role in devising a safety net for Greece.

Galeries Lafayette department store in Berlin
Galeries Lafayette - a successful French export to Germany

"There is clearly more support for this than three weeks ago," said a senior German official.

France, together with officials at the European Commission and the European Central Bank, had opposed IMF involvement, arguing it would signal that the EU couldn't look after its own.

But on Wednesday night, Germany held out against a French call to convene a last-minute mini-summit of euro-zone countries.

"We are not clear what would happen at such a meeting," the German official said.

Germany clearly wants to refashion Europe's economy in its own image, with tougher penalties for those like Greece who break the budget rules.

But the official rejected accusations that Germany was looking after its own interests, rather than those of Europe as a whole.

"Is the best European," he asked, "the one who acts fast and endangers the system in the long-term or he who safeguards its long-term stability?"

With Germany and France out of synch on economic policy, and the euro sinking to a 10-month low against the US dollar, these are troubled times for the EU.

Print Sponsor

The Independent Merkel hardball tactics pay off in Greece aid deal - 9 hrs ago
Times Online Why Germans must lead the way - 10 hrs ago
Reuters UK EU leaders reach Greece aid plan - 15 hrs ago
The EconomistCharlemagne: The myth of the periphery - 16 hrs ago
The Scotsman Brown joins summit of EU leaders as Greek crisis bites - 18 hrs ago
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