France and Germany: Transforming Challenges into Leadership Opportunities

France and Germany are Europe’s largest economies. Their collaboration has historically been a catalyst for change, often establishing benchmarks for economic and political integration.

Today, in the face of economic stagnation and decline, the decisions France and Germany make for their domestic economies will also determine the future direction of the entire European Union.

Both countries’ heavy reliance on exports and foreign investments leaves them particularly vulnerable to global economic trends, especially as skills and technological capacities grow in regions where people are willing to work harder for lower wages.

This vulnerability impacts the entire EU, as their economies represent 40% of its GDP. Continuous economic decline of France and Germany could thus ripple across the Union, slowing-down Europe’s long-term economic development and competitiveness.

By championing economic freedom and limiting government dirigism to areas where government functions can truly excel, the next governments of both countries now have a unique opportunity to break free from stagnation and revitalise Europe.

France: Time to Break the Cycle of Stagnation

France faces significant political challenges to address, including a government that accounts for nearly 60% of GDP, high taxes, and massive inefficiencies in public spending. These factors are reflected in a stubbornly high unemployment rate, with youth unemployment at a striking 18%. While the government’s extensive role has historically aimed to provide social safety nets, the return on such spending has never met expectations. Essential services like healthcare, education, and infrastructure require significant improvement, and workers and businesses face an enormous tax burden that stifles private-sector activity and overall competitiveness.

Reforms, such as those recently proposed by Michel Barnier, highlight the scale of the challenge. His measures—spending cuts of EUR 40 billion in a EUR 600 billion budget and EUR 20 billion in higher taxes on corporations and the wealthy—represent modest adjustments compared to France’s staggering EUR 3 trillion in outstanding government debt. Yet even these incremental changes, a mere drop on an increasingly hot stone, faced fierce opposition, particularly from those reliant on public wages and subsidies.

Reform is both necessary and possible, but it demands political courage and public acceptance of short-term sacrifices for long-term gains. France’s political elite must clearly explain the “J-curve” effect: structural reforms may initially cause economic discomfort but pave the way for a stronger, more resilient economy. Without financial market pressure or broad public support, however, the political will for such changes remains weak.

Yet the opportunity is clear. By cutting bureaucratic inefficiencies, eliminating subsidies, and fostering private sector growth, France can redefine its economic model. Success requires decisive leadership and a compelling vision to inspire public trust and resilience. At this crossroads, France has the chance to transform its economy into a dynamic engine of growth and shared prosperity.

Germany: Maintaining Strength in the Face of Stagnation

Germany faces a different but equally urgent set of economic challenges. Soaring energy costs, amplified by the energy transition, are straining its broad manufacturing base, while excessive subsidies and burdensome regulations stifle growth. Adding to the strain is a tax code so complex that it creates unintended consequences for wealth and income distribution, further hindering economic opportunity. Though its public debt burden remains comparatively low, Germany risks eroding its competitive edge without bold action to streamline its tax system, eliminate subsidies, and revitalise its private sector.

Upcoming elections present a chance for economic renewal. With public frustration mounting over inefficient government services and rising costs, the demand for bold reforms has never been clearer. The next government – likely a coalition striving to balance pragmatism with ambition in the energy transition – must seize this opportunity to revitalise economic and technological development, and reaffirm Germany’s position as a global leader. This is not merely a chance for change but a call to action to secure Germany’s future competitiveness and prosperity.

A Unified Vision for Europe

France and Germany’s challenges are not isolated; they are European. Together, these nations are deeply interwoven into the continent’s economic fabric. Political and economic inertia in these two countries risks undermining Europe’s competitiveness on the global stage, especially against the backdrop of rising competition from the US and China.

These shared challenges highlight the urgent need to complete the Single Market and advance legal harmonisation across Europe. While not everything needs to be delegated to the EU level – many issues should rightly remain national competences under the principle of subsidiarity – the Single Market requires a concerted effort to eliminate unnecessary regulations and counterproductive fragmentation.

Prioritising horizontal policies such as common – not different – rules for tax base calculation, labour market regulations, and corporate law is essential to establishing a future-oriented regulatory framework. Legal harmonisation in these critical areas will simplify cross-border trade and investment, and boost competition and economic opportunity. By creating a predictable and unified business environment, Europe can reinforce its global competitiveness and fully realise its economic potential.

Leadership Beyond Borders

As the EU prepares to face global uncertainties – from shifting trade dynamics to geopolitical tensions – France and Germany have a unique opportunity to shape a future-proof European economic poliucy agenda.

By addressing their domestic challenges with urgency and determination, France and Germany can demonstrate the power of collaboration and reform. Their leadership can galvanise other Member States, making the Single Market a reality in its fullest sense.

A Call to Action

The path forward will not be easy. Structural reforms often require short-term sacrifices, and political gridlock can stymie even the best intentions. Yet the rewards of bold action – a stronger, more innovative, and united Europe – are worth the effort. France and Germany must recognise this moment not as a crisis but as a shared opportunity to lead. By addressing both their domestic vulnerabilities and the broader challenges facing Europe, they can set the foundation for lasting prosperity and resilience.