The Priorities of a New Franco-German Covenant

The war in Ukraine, the arrival of a new United States administration, the risk of being marginalised in a new geo-economic context and very low productivity growth in Europe call for strong Franco-German leadership. There is little room for delay or manoeuvre: by the summer of 2026, France will be too focused on the 2027 presidential election to consider large-scale European political projects. The time to act is now, and it is in this context that some 20 French and German economists, brought together by the Franco-German Council of Economic Experts, have just submitted five reports to the two governments.

Defence is the first priority. The war in Ukraine has reminded us that Europe must invest both in basic equipment, essential in a war of attrition, and in cutting-edge technologies: autonomous drones, space systems and hypersonic weapons. Currently, and in the absence of a single defence market, each country is multiplying its national orders, resulting in additional costs and stifling innovation. The creation of joint projects and common assets, possibly financed by shared debt, would make it possible to move forward.

Second priority: productivity and innovation. Europe is falling increasingly behind the United States and China, particularly in artificial intelligence. The report proposes creating a Franco-German Agency similar to the US Defense Advanced Research Projects Agency (DARPA) established back in the 1950s and capable of financing disruptive innovation on a scale comparable to that of the United States.

Next, the leaders of France and Germany are encouraged to build a joint ‘AI gigafactory’, equipped with more than 100,000 processors, which would allow Europe to catch up on its massive backlog in high-performance computing.

Another proposal: a fund to democratize innovation, so that access to scientific and entrepreneurial careers no longer depends on income or gender. These measures must be accompanied by an offensive to create a true single market for innovation. Implementing Europe’s ‘28th Regime’ – a unified legal framework designed to help innovative companies, particularly start-ups, scale across the EU by providing a single set of harmonized corporate, insolvency, labour and tax laws instead of navigating the 27 different national legal systems – would offer start-ups a harmonised legal framework, avoiding the additional costs associated with disparate national rules.

A third area requiring immediate attention: energy. France is banking on nuclear power, while Germany relies on renewables. Without coordination between the two top European economies, these choices risk colliding head-on. The Economic Experts’ report recommends joint auction systems, a bilateral council bringing together governments and network operators, and a shared research program on hydrogen and key technologies.

Relations with China

In the labour market, the challenges are somewhat different on each side of the Rhine. Increasing employment and job quality requires simultaneously addressing the structural weaknesses of each country: better training and integrating young people in France, reducing female underemployment in Germany, extending the working lives of older workers, and offering a genuine second chance to low-skilled workers. It is in this convergence of objectives that the Franco-German partnership can find a common agenda.

Finally, a politically-sensitive issue: the relationship with China. The report advocates for a ‘selective openness’, one that combines a strict protection for European sectors such as defence, space and robotics, while allowing Chinese imports to benefit consumers in mature sectors and attracting Chinese investment in areas where Europe is lagging behind, such as the manufacture of batteries, provided that technology transfer is ensured. Europe must also reduce its dependence on raw materials controlled by Beijing by diversifying and innovating.

The conclusion of the five reports issued by the Franco-German Council of Economic Experts is blunt: it is now or never. The Franco-German partnership has a narrow window of opportunity to act. Defence, energy, innovation, employment, trade: these are all fronts where Franco- German cooperation is essential to drive a dynamic without which Europe, lacking a shared ambition, could well be doomed to disappear.

© Xavier Jaravel, 2025, published by RUSI with permission of the author.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.

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