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Angela Merkel, German chancellor, is pressing Finland and other liberal-minded EU member states to speak up for liberal economic policies as the UK, their traditional standard-bearer, prepares for Brexit.
Berlin is concerned that with the UK leaving, the EU economic debate will shift in favour of France, Italy and other south European countries. These countries have long put less faith in free markets and deregulation than the British-led northern lobby and pushed instead for a state-led approach, often linked to increased public spending.
Ms Merkel fears this could undermine the EU’s competitiveness at a time when it faces challenges from emerging economies led by China and from the populist US president Donald Trump, who is considering protectionist economic measures that could harm the EU.
The fact that our closest ally is going to leave is going to change our way of working in the EU Ann Linde, Sweden’s EU minister Ms Merkel is worried that while François Hollande, the socialist French president, has regularly been able to bring together centre-left leaders for joint political initiatives, the centre-right is far less coherent and could be further weakened by Brexit.
She wants to be well-positioned for when the winner of the coming French presidential election starts to engage in the EU economic debate. Emmanuel Macron, the centre-left favourite in the opinion polls, has promised market-oriented reforms.
But Berlin is alarmed that he could press the eurozone to relax fiscal rules so that France, and perhaps other countries, could increase public borrowing. Ms Merkel made clear her views at last month’s annual conference of the European People’s Party, the EU centre-right bloc in which she is the most powerful national leader, when she backed a resolution saying: "We are against public spending policies which can boost growth in the short term but which produce, in the long term, inflation, loss of competitiveness, unemployment and poverty.”
Berlin is reluctant to push itself forward as the liberal states’ leader as it could magnify other countries’ concerns that Germany already dominates the EU and could complicate Ms Merkel’s longstanding role as the union’s compromise-maker.
The chancellor also wants to keep the Franco-Germany relationship, which lies at the EU’s heart, as strong as possible — and avoid turning the union-wide economic policy debate into a narrow argument between Berlin and Paris. One ambassador in Brussels for a Baltic state said there had been some informal discussions with German counterparts about the changing balance within the EU.
Another senior official from northern Europe said that the conversations started "right after the Brexit vote” and had intensified in the meantime. But Germany’s job is difficult, as there is no other economically liberal member state with the UK’s economic and political weight. Berlin’s remaining allies are much smaller — Sweden, Finland and the Baltic states.
Poland has a similar outlook on economic policy but Warsaw’s nationalist Law and Justice government makes it a difficult partner on political grounds. By contrast, France’s main economic policy ally is Italy, the third largest in population terms of the EU27 states.
Also, some of Germany’s allies are sceptical about taking liberal economic policy advice from Berlin. "That is in our DNA — we don’t need Merkel talking points for that (as much as we love her),” said a Finnish official. Other north European diplomats argue that Germany may have some lessons to learn itself.
Its services market, especially for professionals, is one of the most highly regulated and closed to cross-border trade. Ann Linde, Sweden’s EU minister, told the Financial Times last year that Brexit meant that Sweden would have to work harder to make its voice heard on issues such as free trade, with the country having to become "mildly aggressive”. "The fact that our closest ally is going to leave is going to change our way of working in the EU,” she said.