Trump’s iran sanctions will aggravate the french-german discord on eu reforms – what are signs of a concussion

He knows that his ideas about the future of Europe and the French-German relations are issues for serious debate. He also knows that Germany’s peremptory dismissal of his reform proposals are signs of vulnerability because he is pressing the right buttons.

Here is what’s at stake. In several of his speeches last year, Macron proposed measures mostly focused on the 19-nation monetary union that should serve as a strong core of the European Union consisting of 28 member states (or 27 if the UK concludes the separation agreement by the spring 2019).

Suffering from a protracted interregnum last year, Germany took all that as an affront. Macron’s pIan was dead on arrival in Berlin, shot to pieces well in advance in a typical NIH (not invented here) manner. The whole thing was ridiculed as an exercise in building unnecessary bureaucracy and imposing new financial burdens.

Berlin prefers to talk about its own priorities, such as the mandatory EU quotas for taking migrants that Germany invited and could no longer manage, digital economy and the completion of the euro area banking union. True to form, the German “down-to-earth” talk is also accompanied by the usual violins about staying competitive to push exports.

Three, I’ll take the liberty of ascribing to Macron this unstated thought: His euro area reform program would also make it impossible for Germany to boss people around; the administrative setup he proposes would unfailingly and routinely enforce the rules of the monetary and fiscal union.

French commentators of all stripes expect a damp squib, accusing Macron of talking too much instead of “banging his fist on the table.” Responding to that criticism, the French presidency announced last week that it was looking for substantive decisions next month.

In her speech last week to celebrate Macron’s Charlemagne Prize (for contributions to the cause of the European Union), German Chancellor Angela Merkel spoke mainly of the problems the U.S. was creating for the German economy with its unilateral sanctions on Iran.

The reaction to the fallout from Washington’s Iran sanctions is characteristic of ambiguity in French-German relations. In spite of statements that the two countries wanted to stay in Iran’s nuclear agreement, Paris and Berlin are working on separate tracks to get exemptions from the U.S.-imposed sanctions on their companies involved in multi-year and multi-billion deals with Tehran.

France says that the extraterritorial reach of Trump’s Iran sanctions is “unacceptable,” while Germany remains resigned that “nothing can be done about it.” Following that conclusion, Germany is talking about post-Trump policies, because Berlin presumably expects that next November’s mid-term Congressional elections can cripple what they apparently believe will be a one-term presidency.

More realistically, Germany seems to be counting on China and Russia (and perhaps India) to reject Washington’s unilateral sanctions on Iran — offering a way out the German-led Europe is unable to find on its own. All eyes are now on Iran’s ongoing talks in Beijing and Moscow, and a visit of Tehran’s delegation to Brussels next Tuesday.

Investors voting with their savings on euro-denominated assets may wish to follow closely the French-German clash about measures that are necessary to strengthen the European project. These are crucially important steps to make irrevocable the EU’s single market and the euro as a legal tender.

France has posed that question in the form of far-reaching reforms to mend Europe’s dangerous fault lines and set the famously fractious continent on a path to peace, harmony and prosperity. So far, Germany has shown no interest to cooperate, but France, apparently, won’t give up. A prominent French philosopher reminded the body politic last week that “article one of Macronist doctrine is attachment to the idea of a united Europe.”

Here is mine: Macron will win and Italy will soon get a pro-European prime minister with little patience for Germany. The fiercely independent and highly professional European Central Bank will remain a pillar of the steadily growing euro area economy. Trump will be “convinced” by China, Russia and India — all actively trading with Tehran as an ally — to scale back his Iranian hostilities.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.