France and Germany Are Getting Stressed With Each Other

(Bloomberg) -- The powerful French-German alliance showed further signs of stress this week, calling into question the viability of Emmanuel Macron and Angela Merkel’s ambitious European Union reform agenda.

A gap widened between Paris and Berlin on Tuesday over how and when to institute a levy on large technology companies such as Amazon Inc. and Alphabet Inc. doing business in the EU. This endangers Merkel and Macron’s shared commitment to reaching an agreement on a digital services tax by the end of this year.

The allies are already trying to manage their differences over how to confront the U.S. over growing trade tensions and how to reinforce the euro-area banking system against further shocks. European leaders are looking at this common tax to show that the EU can provide policy solutions that help its citizens as a growing chorus of populist parties paint Brussels as an enemy of the people.

“If we don’t manage to do this, it will be a failure and a disappointment,” Pierre Moscovici, the EU commissioner in charge of economic affairs, told a meeting of the EU’s finance chiefs on Tuesday. “It won’t be a failure and disappointment for everyone sitting around this table, but for all European citizens who are watching us and expect to see proof of Europe.”

Global Approach

The growing split between the EU’s two largest economies highlights a stark vulnerability as the bloc prepares for the departure of the U.K. in March and before EU Parliament elections in May. That ballot could prove a bellwether of the strength of euroskeptic populist parties that have been gaining ground across the continent by criticizing EU institutions.

French President Macron’s popularity has been flagging at home and Germany’s Merkel, who rose to become Europe’s preeminent leader during her 13-year chancellorship, set the stage for her political departure by announcing she’ll cede the leadership of her Christian Democratic Union. The disagreement on the digital tax is just one area that could underscore how difficult it will be for the EU to push through any big ticket reforms.

French Finance Minister Bruno Le Maire tried to sway the debate in Brussels by offering to push back the start date of a 3 percent levy on the revenue of large tech companies but said that a binding decision would have to be made in December.

But his German counterpart Olaf Scholz, who wants a global approach to the levy before a European one can be formulated, said the European Commission still needed to elaborate on its proposal and present it “in due time.” He said that December remains the target date to forge a plan, which would be a backstop of sorts if global efforts over the next year and a half fail.

Ministers from Denmark, Ireland and Sweden said they couldn’t support the tax in its current form, raising doubts that an accord is in the offing, since unanimity is required to pass taxes in the EU. Failure to agree on a common tax policy could lead nations to take matters into their own hands, increasing the risk of division in the single market.