France-Germany: close but unbalanced economic relations

Posted January 22, 2023, 9:30 am

The Elysée Treaty was signed 60 years ago by De Gaulle and Adenauer to seal the Franco-German peace. Patrick Brandmaier, director general of the Franco-German Chamber of Commerce and Industry, points out that this has really set the stage for economic rapprochement between the two countries, even though nothing is planned in this regard. After the Covid pandemic, the economic relations between the two countries have further developed.

Thus, in 2021, Germany became the leading investor in France, Europe’s leading market, creating more than 8,000 jobs in France. After growing by 12% to 165 billion euros in 2021, trade between the two countries increased by a further 13% in the first eleven months of last year. Post-Covid rising transport costs, rising energy prices and the search for a stable political framework now favor geographical proximity to customers and suppliers.

Chronic trade deficit

This dynamism of exchanges cannot forget the imbalance in commercial relations. “France is more dependent on Germany,” said Charles-Henri Colombier, an economist at Rexecode. The first economic power of the Eurozone is Hexagon’s first supplier and first customer. But this translates into a structural trade deficit for France: in the twelve months to November 2022, it amounted to €12 billion, according to French Customs.

In 2021, France became Germany’s third customer country. In 2022, it should overtake China, which is facing a slowdown in growth. “The two countries exchange almost the same category of products: automobiles, chemical and pharmaceutical products, electrical equipment, etc. but the volumes sold by France are lower. On the other hand, it also sells business and tourism services to Germany,” says Cepii’s economist Tomas Grjebine.

A response to the American IRA

Since the Russian invasion of Ukraine, the Franco-German couple has been under tension mainly over political issues. A 200 billion euro bailout plan announced by Berlin last October to protect its economy from rising energy prices has increased tensions. “Part of the plan will have no impact on the competitiveness of German companies. The essence of the issue will be support for energy-intensive companies,” said Charles-Henri Colombier.

In the Franco-German chamber, we remind you that “if Germany catches a cold, France coughs.” A recession scenario across the Rhine is receding in 2023 thanks to falling gas prices and stronger-than-expected demand.

Today, Paris and Berlin face the same challenge of responding to rising US and Chinese protectionism. Joe Biden’s Inflation Reduction Act (IRA), which provides huge subsidies to American companies to go green, “puts Europe in a difficult position as an industrial destination.” “We need to create a clear regulatory framework and conditions that allow French, German and European companies to be competitive,” said Patrick Brandmaier. For industrialists invited to testify by the Franco-German Chamber last Wednesday, the issue of price and access to energy remains a pressing issue to be resolved. “We have to go faster,” said Houcine Hamdi of Siemens Energy.

“The French expect more from the Germans”

Although Paris has expressed support for additional funding, Patrick Brandmaier denies the need for it: “We do not want new aid. Germany and France, on the other hand, could show they are ready to implement plans that have been launched, be it the €750 billion European recovery plan to address the semiconductor shortage or the European Chip Act announced in October.

“The problem is that the French expect more from the Germans than the opposite,” notes Thomas Grjebine. If France wants to mobilize European funds to push the Buy Europe Act, ease state aid rules or boost industrial investment in future sectors, it needs Germany’s support, which becomes more difficult when it serves their interests. adaptation is not necessary. »

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