Franco-German Dispute: Europe’s Economic Future at Stake 🇩🇪🇫🇷🇪🇺

What is Macron demanding in terms of protecting European industry, and why is Berlin rejecting this request?

Emmanuel Macron pleads for active preferential treatment of European products in calls for tenders and public markets. “I am not talking about protectionism, but about favoring European products,” he declared. This includes protecting European steel. The French president wants to preserve entire sectors, such as the steel industry.

The German government rejects this comprehensive approach. “We are convinced that protectionism cannot be Europe’s model of prosperity,” government sources said. Instead of isolationism, there is a need for more trade agreements, including beyond the Mercosur agreement. France opposed this agreement out of fear for its agricultural sector. The free trade agreement between the EU and the Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – concluded politically in December 2024, aims to create the largest free trade area in the world, bringing together more than 700 million inhabitants.

The debate around the protection of steel is particularly revealing. The European Commission has already strengthened steel protection measures in 2025 in order to protect the European steel industry from rising imports. This industry is under severe pressure due to global overcapacity, increasing Chinese exports and strengthening trade barriers in key markets like the United States. Thirteen EU member states have requested a review of these measures, as the situation in the sector has deteriorated due to increased import pressure and falling demand.

What is the “Made in Europe” initiative and what is Germany’s position on it?

The European Commission is working on a “Made in Europe” law aimed at favoring, during public calls for tenders and the award of subsidies, companies which carry out a significant part of their production in Europe. This project also concerns companies outside the EU: new requirements will apply to investments above 100 million euros in strategic sectors such as batteries, electric vehicles, robotics and solar energy.

Berlin generally supports the initiative, calling it “centralized,” but under certain strict conditions. The German position favors “Made with Europe” over “Made in Europe”: it would be sufficient for production to take place in a country that has concluded a trade agreement with the EU. According to Berlin, the “Buy European” rules must meet the following criteria: they must remain the exception, be limited to critical and strategic technologies, and not extend to entire sectors. Furthermore, they must be temporary and subject to a rigorous assessment of their proportionality and anticipated cost increases.

Berlin is very favorable to the idea of “Made in Europe” standards in terms of economic security, particularly for the supply of medicines, chemicals and semiconductors. Berlin also considers justified the protection of strategic technologies such as batteries and robots, as well as key industries “existentially threatened by unfair practices by international competitors”. Macron, on the other hand, plans to protect an entire sector, including the steel industry, which goes far beyond what Germany is prepared to accept.

What role does the Savings and Investment Union play as an alternative to Eurobonds?

The Savings and Investment Union, formerly the Capital Markets Union, has become a central topic in the European economic debate. On March 19, 2025, the European Commission presented a strategy aimed at directing savings towards productive investments. The observation is striking: almost 70% of European household savings, or 10,000 billion euros, are held in the form of bank deposits which, although safe, offer a low return.

From Berlin’s point of view, the Savings and Investment Union offers an alternative to common debt. Instead of contracting new debts, private savings should be directed more effectively towards productive investments. European citizens should have more opportunities to invest their assets in the capital market, and businesses should benefit from better access to financing. The strategy is based on four pillars: improving opportunities for citizens and savings, increased investment and financing, greater integration and scale, and more effective supervision within the single market.

The union of savings and investment was one of the main outcomes of the Alden Biesen summit. However, resistance persists: Luxembourg and Ireland, in particular, express reservations regarding the cross-border integration of capital markets. If the banking union, implemented in response to the financial crisis, produced concrete results, the capital markets union remains to date a project without effective implementation.

How did the EU summit in Alden Biesen take place and what decisions were taken?

The informal EU summit was held on February 12, 2026 at Alden Biesen Castle, Belgium, and was entirely dedicated to competitiveness. Merz and Macron appeared together before the press that morning, displaying their unity despite their significant differences on economic policy. The Automobile Industry Association had previously demanded that the summit “send a very clear signal” and take measures that would “strengthen European competitiveness with the necessary political urgency and strategic clarity”.

There was broad consensus on the further evolution of the Capital Markets Union towards a Savings and Investment Union, the establishment of a simplified legal framework for start-ups and the possibility for Member States to withdraw from cooperation at EU level. Interested countries should carry out their projects in small groups if an agreement with the 27 member states proves impossible.

Macron set an ultimatum: concrete decisions on how to make the EU more competitive must be made by June. If the 27 member states do not make progress by then, the possibility of “enhanced cooperation” with states wishing to participate must remain open. However, no progress has been made on the major points of disagreement: common debt and overall industrial protection.

Why does the Mercosur agreement serve as a decisive test to decide between the different positions?

The Mercosur agreement highlights the fundamentally different economic philosophies of Germany and France. While Berlin favors the opening of markets and the multiplication of trade agreements, France positions itself as the protector of its national industry, and in particular its agricultural sector. France strongly opposed the Mercosur agreement, arguing that it did not sufficiently protect French farmers.

Negotiations on the EU-Mercosur agreement began in 1999 and were marked from the start by conflicts over the agricultural sector. In addition to France, Poland, Hungary and Italy also opposed this agreement. In France, the approval of the Mercosur agreement by the EU even led to motions of censure against the government, which however did not obtain a majority.

From Berlin’s point of view, the French refusal of Mercosur underlines the inconsistency of the Parisian position: France demands a common European debt to increase investments, while blocking trade agreements that would open and strengthen the European economy. The German government has insisted on the need to conclude more trade agreements, “beyond the Mercosur agreement”. Europe must open up to the outside world, not isolate itself.

What structural reforms are necessary from Berlin’s point of view?

The German government is calling for a broad set of structural reforms that go far beyond isolated measures. This essentially involves reducing regulation and bureaucracy, completing the single market, particularly in the services sector, strengthening the Capital Markets Union to better finance innovation, modernizing the EU budget with a greater focus on future investments and concluding new trade agreements.

Berlin even expects member states demanding new funding to participate in these reform efforts. This message is addressed to France and other supporters of a common debt. While Macron demands new financing instruments, France is among the eurozone countries with the highest debt-to-GDP ratios and has repeatedly postponed its structural reforms.

According to the Federation of German Chambers of Commerce and Industry (DIHK), the European Commission’s competitiveness compass has raised important questions, but so far “convincing answers and a clear policy change” are lacking. Heads of state and government must take concrete measures with an immediate impact on the daily activities of businesses. At the same time, the DIHK calls for strengthened cooperation between the EU and its reliable partners, particularly in terms of trade agreements.

How do economic experts assess the debate between Berlin and Paris?

The opinions of experts demonstrate the complexity of the debate. Marcel Fratzscher, president of the DIW, supports Draghi’s diagnosis and emphasizes that, without significantly greater public and private investment, “productivity and growth will weaken further, jobs and innovative companies will relocate, and much prosperity will be lost.” Henning Vöpel, director general of the Center for European Policy, notes that Ursula von der Leyen’s policies are “perfectly in line with the recommendations and analyzes of the Draghi report.”

At the same time, more nuanced views are being heard in the productivity debate. Analyzes show that productivity in the EU is almost equivalent to that of the United States if we consider hourly productivity. The gap is then mainly explained by longer working hours and higher prices in America. While this perspective puts alarmist speeches into perspective, it does not change the fact that Europe is lagging behind in terms of technological innovation and the development of new businesses.

Andrea Frank, of the Stifterverband Foundation, emphasizes that Europe is not experiencing simple economic fluctuations, but rather “structural upheavals which will profoundly transform the economy, science and society”. The low number of large technology companies in Europe is the main cause of the productivity gap with the United States. A reduction in isolated national initiatives and a more judicious division of labor could significantly improve the competitiveness of the EU.

What prospects does this offer for European economic policy?

The Franco-German dispute should have a lasting impact on European politics. Macron set a timetable, with June 2026 as the deadline, and outlined an alternative based on “enhanced cooperation” in case an agreement with the 27 member states proves impossible. Germany faces the dilemma of reconciling its opposition to a common debt with the need to invest massively in defense and technology.

The negotiations on the next multiannual financial framework (MFF) for the period 2028-2034 will constitute the real battlefield of this conflict. With a total proposed budget of around two thousand billion euros, this framework defines the decision-making arrangements relating to the reorientation of EU spending. Funding will not come from increased contributions from member states, but from new own resources, such as taxes on tobacco products and e-waste, business levies and charges under the Carbon Border Adjustment Mechanism.

The repayment of the NextGenerationEU recovery fund, which is due to start in 2028, further worsens the budgetary situation. The German government categorically refuses to perpetuate this exceptional and temporary instrument. This position further restricts the financial room for maneuver for new joint initiatives, strengthening Berlin’s position but also raising the question of how the 800 billion euros in annual investments demanded by Draghi can be achieved without new sources of financing.