What Happened To France's Voice In Europe?

By Luke Baker and Mark John

BRUSSELS/PARIS, April 24 (Reuters) - A few hours after midnight one Sunday last month, as negotiations over a rescue for Cyprus dragged into a second day, French Finance Minister Pierre Moscovici fell asleep.

Most euro zone ministers in Brussels that night failed to notice, continuing to pore over the details of the multi-billion-euro deal. It fell to Christine Lagarde, French director of the International Monetary Fund, to approach Moscovici and nudge him awake, according to witnesses at the March 24 talks.

The sight of the IMF head waking up France's top finance official in a crisis meeting neatly illustrates a question that is troubling European diplomats: what has happened to France's voice in Europe?

For decades France has been central to the European project that was born out of World War Two and now reaches from Europe's Atlantic coast to beyond the former Iron Curtain.

Straddling north and south, France has a unique perspective on Europe. It is the European Union's largest economy after Germany. One of six founders of the original European coal and steel community in 1951, it has shaped and often led, the institutions that make the EU tick.

The readiness of successive French and German leaders to work together has for decades created a consensus among two former enemies that has steered Europe through crisis and change - from the end of the Cold War and Germany's reunification, to the expansion of the EU to the east and the introduction of the single European currency in 1999.

For much of the past four years, during which the euro zone was nearly torn apart by a debt crisis, the Franco-German axis has held true. But in the past six months, questions have arisen about what France is offering in terms of fresh ideas, and how it is dealing with the rest of Europe.

"You can see a shrinking presence, a progressive disappearance of France on most issues that concern the economic agenda," said Fredrik Erixon, director of the European Centre for International Political Economy, a Brussels think tank.

European diplomats from a range of member states, speaking on condition of anonymity, are more blunt.

"You don't hear France's voice at all. They are nowhere, just nowhere," said a senior European diplomat who is in frequent contact with other member states.

"This is a critical country and yet it seems absent," he said, mentioning as an example a lack of sustained French input to the debate on how to strengthen economic and monetary union.

"It's not just strange, it's worrying," he said. "Everyone is aware of the problem. There's concern at multiple levels."

LOSING INFLUENCE

Even France accepts something is wrong. Prime Minister Jean-Marc Ayrault told parliament this month it was time the country reasserted itself so that "what it says counts in Europe, and that it can rediscover the leadership role it has lost".

Diplomats, officials and analysts interviewed by Reuters offered a range of theories for the ebbing French influence - from the style-change since the consensual Francois Hollande took over from the more combative Nicolas Sarkozy, to the fact that English is displacing French as Brussels' lingua franca.

There is broad agreement that one root of the problem lies in France's inability so far to follow Germany's lead in reforming its economy. A lack of economic competitiveness has undermined France's ability to project influence in Brussels.

Hollande insists early reforms such as a deal with trade unions to loosen labour law should be given time to work, and points to the fact that he has already managed to reduce France's public deficit from its Sarkozy-era levels.

Yet critics say the pace of reform is not fast enough, especially when it comes to pensions reform and overhauling a centralised economy.

In February, France finally conceded what its EU partners had guessed for months: that it would not be able to keep a promise to bring the deficit down to 3 percent of output this year. At the same time growth is weak and debt and unemployment are rising.

Away from the economy, France remains vocal. On foreign and defence policy, its intervention to help combat Islamist rebels in Mali and its diplomatic efforts to end the Syrian conflict show the veto-holding U.N. Security Council member remains a powerful voice, and one able to make an impact. In such matters, France is as confident as it was a decade ago when it galvanised European resistance to the U.S.-led invasion of Iraq.

But on Europe's most pressing economic issue - how it sees off the debt crisis and puts itself on a footing to compete with the United States and Asia - the weakness of France's economy and public finances means its voice is muffled.

"If you don't have your house in order, it's very difficult to influence others," said Erixon of the ECIPE think tank. "This is not the sort of France we've grown used to having in the European Union."

SOUTHERN SYMPATHY?

When Hollande came to power last May as France's first Socialist president since Francois Mitterand was elected in 1981, many in France and southern Europe expected him to act as a buffer to the German-led push for budget austerity.

Such hopes looked set to be borne out when, to the delight of Spain and Italy, he used his maiden EU summit last June to demand that the EU create a "growth pact" to alleviate the pain of deficit-cutting. Yet the growth pact is failing to prevent much of Europe sliding into recession and Hollande has stopped short of rallying a southern bloc against Merkel.

"We understand there is disappointment in the south about that," said a French source closely involved in EU policy. "But there was no way we were going to risk dividing Europe in two."

Finance Minister Moscovici says renewed debate about growth and austerity is proof that France is being heard.

Another factor in Hollande's choice not to align France with the south might well have been the financial markets.

In 2012, whenever Hollande spoke out in sympathy with Spain, Italy or Greece and looked ready to go toe-to-toe with Germany and other northern European states over austerity, the yields on France's benchmark 10-year bonds would rise.

When rating agency Moody's last November stripped French debt of its triple-A rating, some suggested France risked being re-categorised as a southern European economy such as Spain and Italy - with the higher borrowing costs that come with that.

So while Hollande maintains a stream of verbal attacks on austerity, he continues to chip away at France's deficit, albeit at a slower pace than Berlin or Brussels would like.

It adds up to a half-way house that, for now, the markets accept: France's 10-year bond yield has fallen to all-time lows around 1.80 percent, occupying a niche between even lower-yielding German Bunds and riskier southern bonds.

But Hollande's need to keep a safe distance between France and the countries of the south has not led to a greater meeting of minds with Berlin, his most important relationship.

Whereas Merkel and Sarkozy enjoyed warm relations, no matter how different their personal styles, Hollande and the German chancellor have struggled to find a comfortable pitch, a lack of ease most prominently on show at the EU's frequent summits.

"FRIENDLY TENSION"

Ahead of EU gatherings, Sarkozy, a man of nervous energy and constant activity, would criss-cross Europe in bursts of shuttle diplomacy and then meet Merkel in Paris or Berlin the day before to agree a common position, much to other leaders' chagrin.

The ritual meant France and Germany were always centre-stage and gave the impression of driving decision-making, not least as the EU has held no fewer than 25 summits in the past 3-1/2 years rather than the usual four a year.

Moreover, the body language of what famously became known as "Merkozy" was choreographed to show Franco-German togetherness. When the two arrived at summits, they would make a show of bonhomie, kissing each other on each cheek and smiling broadly.

While Merkel and Hollande have recently started pecking each other on the cheek, flashes of empathy have been few. "As you know, Mrs Merkel and I do not see things the same way, but we have the same duty - to push Europe forward," Hollande said last month, calling the relationship one of "friendly tension".

Hollande's aides say his reluctance to hatch deals with Berlin is a deliberate policy to include the other 25 members of the EU in decision-making. But one consequence is that Berlin is now doing more of its deal-making with others.

"France has found it hard to define itself, either to pretend that there is a Franco-German agreement, or that it can be a driving force behind a Franco-German agreement," said Jean Pisani-Ferry, the director of Bruegel, a Brussels-based think tank that frequently provides policy advice to the EU.

NOT OUR PROBLEM?

Hollande's task of making France's voice heard is all the harder given the internal differences on European policy among ministers and allies. Finance Minister Moscovici is a supporter of deeper EU integration while Foreign Minister Laurent Fabius is seen as wary of further moves to shed sovereignty.

"Hollande has not come down forcefully on either side of the debate so far," noted Thomas Klau, director of the Paris office of the European Council on Foreign Relations (ECFR).

Opponents of Hollande are making hay out of the disarray. Bruno Le Maire, Sarkozy's former Europe minister, said France's voice in Europe was now at its weakest since 1957, the year before Charles de Gaulle founded the Fifth Republic.

Whoever is to blame, the fact remains that one of Europe's main motors is not functioning as it should.

"France is tied up with internal problems and is not the strong interlocutor we would like," said Michael Grosse-Broemer, parliamentary whip for Merkel's Christian Democrats. "But that's not Berlin's problem, or the chancellor's."

Others argue it is very much Germany's problem.

Cypriot public anger at an EU rescue package that for the first time imposed losses on bank depositors was directed at Germany - a pattern already observed on the streets of Athens, Madrid and Rome. From Berlin's point of view, not having a partner standing alongside it makes life difficult.

"It's not in the interests of Germany," said Bruegel's Pisani-Ferry. "It doesn't want to be seen as the country running the show. That's not very comfortable for it, obviously."

Just how the European Union will evolve if French influence is durably muted and Germany is pushed against its will into a lone leadership role is hard to predict.

But it did not go unnoticed in Paris that it was the prime minister of Britain and his family who were recently invited to spend the weekend with Merkel at a country estate.

"These days it is with David Cameron that Angela Merkel tries to build a common position," wrote Le Point weekly with a hint of pique. "And not with Francois Hollande."