A new French revolution is about to rip apart the EU

Later on, the formation of the euro was similarly in essence a French idea. France felt that the deutschmark and the Bundesbank gave Germany power over Europe. Submerging the deutschmark in the euro and castrating the Bundesbank would redress the power balance.

Hence President Mitterrand exacted agreement to the euro as the price of France’s support for German reunification. This only made sense if it was believed that the euro was in French interests and against Germany’s.

This is not quite how things have worked out – at least not if you look at Germany’s relative economic performance compared to France. This seemed anything but inevitable when the euro was formed. For much of the 1990s, Germany was regarded as the sick man of Europe.

She had taken on a massive burden with the absorption of the former East Germany and she struggled to raise productivity. In the early years of the euro France more or less matched her performance. Then Germany underwent radical structural reforms while her companies kept labour costs down. The result has been a German resurgence, admittedly largely on the back of strong export growth. Perhaps the most striking measure is unemployment where, at 10pc, the French rate is roughly double the German rate, having been more or less identical only 6 years ago.

What explains this French deterioration? First, the absence of reform in France – especially in the labour market – compared to Germany’s radical changes. Second, more recently the policy errors of the French government with regard to tax, which have driven talented people abroad and demoralised both businesses and individuals at home. Third, the coming home to roost of problems that have long been building. I have written before of the way that France has managed to do pretty well despite an overbearing state and an anti-business culture.

My preferred explanation for this has always been that the pressures had been successfully bottled up but at some point they would burst out, with heaven knows what consequences. I suspect that this is now beginning to happen.

France is a country of closet protectionism. There is massive in-built prejudice in favour of French products. You notice this clearly in regard to wine. On a recent visit to a restaurant in France I was presented with a list of about 20 pages of wines – all French except for three, listed under a section generously entitled “wines from the rest of the world”. This is normal in France. Indeed, often there are no foreign wines at all. Why has this practice never been investigated by the EU’s competition authorities? Don’t worry; there is no need to tell me. I know the answer.

The average Frenchman unthinkingly assumes that French wine is effortlessly superior. Actually it isn’t. The really top French wines are, I would say, unmatchable. But the more ordinary stuff is readily beaten by wines from around the world. It is ironic that the best place to appreciate this is the UK which, producing little wine of its own, imports from everywhere. The result is that London is the wine capital of the world. This is an example of what openness to trade does for you. And France does not have it.

A country whose problems are bottled up (as it were) can stagger on best when economic conditions are stable. The real problem comes in times of fundamental change. This is what France is experiencing now as she struggles to cope with globalisation.

What is going to happen? I cannot see much prospect of France recovering to match Germany again without really fundamental reform – which French governments have traditionally been incapable of delivering. Accordingly, France will continue to decline relative to Germany. Interestingly, the recent beneficiary of French voters’ protests, Marine Le Pen, does not want to open France up to more competition but rather to use withdrawal from the EU to strengthen the powers of the French state to overrule market forces. This does not bode well.

Indeed, far from being part of the hard northern core of the euro, France is increasingly coming to resemble the soft southern underbelly. Accordingly, for how much longer can the Franco-German “motor” continue to drive the EU? Won’t Germany increasingly realise its own strength and want to break free from its shackles to France? And won’t France increasingly resent the increased power of her neighbour?

I don’t know how this is going to happen or when but I suspect that we are coming close to one of those periodic explosions that have shaped French history. When this happens the EU will never be the same again.

Roger Bootle is managing director of Capital Economics (roger.bootle@capitaleconomics.com)

His latest book, “The Trouble with Europe”, has just been published by Nicholas Brealey Publishing, rrp £18.99. It is available to order for £16.99 + £1.35 p&p from Telegraph Books on 0844 871 1515 or at books.telegraph.co.uk

more