A north-south crisis for Europe: Germany's weakened alliance with France may allow it to dominate southern EC partners, says Lawrence Freedman

The idea that we are heading towards a two-speed Europe is blinding us to the depth of the crisis facing the EC. It is not just that an economic bloc may be created that excludes the weaker states, including Britain. What is ultimately at stake is the balance of power in Europe, and specifically the Franco-German relationship.

Since Konrad Adenauer's celebrated meeting with Charles de Gaulle in 1963, it is the Bonn-Paris axis that has provided the basis for stability in Western Europe. Now there is a danger that it will collapse. Instead of complaining about exchange rate mechanism 'fault-lines', serious though they may be, the British government should be worrying about a political fault-line; one that threatens to split Europe between a German-dominated north and a weakened south whose concerns will no longer receive a proper hearing in Brussels.

Here is how such a north-south divide could emerge, with the streamlining of the ERM. The economic elite of the Community is defined as those members - Benelux, Germany and France - that are able to meet the tests set by the Bundesbank. The prospect that they will form an inner core of a wider union is being used to threaten the others, especially the British.

All this assumes that the elite can stick together through what may still be quite a few of months of extremely high German interest rates. But let us suppose that success leads naturally to an effective currency union, based on far higher co-operation than that provided by the current European Monetary System.

This elite would still be a wholly inadequate basis for a political community. The British tend to argue this point in terms of their own exclusion, but the problem really is that the Franco-German alliance would become a far more unequal affair. The replacement of Franco-German enmity with close co-operation, if not quite amity, is one of the EC's great achievements, born of a recognition that these two great states must never fall out again if Western Europe is to avoid the catastrophic wars of its past. This objective transcends anything either country may wish to achieve in its relations with Britain.

However, the French referendum debate and the battle for the franc, showed how compromised the Franco-German relationship had become. The Bundesbank demonstrated its commitment to the existing parity, but the fall-out has fundamentally altered the EC balance of power. The ERM's inner core is now predominantly northern European, with Sweden, Austria and Switzerland closely associated from outside the Community. Thus it contains the countries over which Germany exercises the greatest influence.

Such a grouping is too restricted for France. Its main problem is not that Britain is excluded, but that the EC's southern flank is now generally extremely weak: Italy is struggling to extricate itself from a state-threatening crisis; the Spanish and Portuguese currencies are under huge pressure; and Greece, out of sight economically, is in danger of getting drawn further into the Balkans imbroglio.

A weakened southern Europe leaves Paris less able to balance the German bloc, or find natural allies when it comes to ensuring that Mediterranean issues - from illegal immigration to Islamic fundamentalism in the Mahgreb - get a proper hearing. Tension between northern and southern Europe over political priorities and the allocation of resources is unavoidable.

Germany looks eastward and sees the most horrendous challenges, even as it struggles to incorporate the former East Germany. The southern states fear that Germany will attempt to solve these problems at their expense; for example, by cutting Community funds to the poorer states.

Germany's reputation in southern Europe has not been helped by its role in the Balkan debacle. Bonn's premature recognition of Croatia last December, even though Zagreb had failed to meet the Community's own criteria on minority rights, was the last straw.

Whatever Germany can offer economically, it cannot match militarily. And it is in the Mediterranean area that the most serious military challenges to the West are likely to emerge. Germany is inhibited by its history and its constitution; Britain and France are the only significant military powers in the European Community, their membership of the United Nations Security Council requiring close co-operation.

Even before the ERM debacle, French hopes of using its alliance with Germany as the basis of a European defence entity had been dampened. Progress in setting up the Franco-German brigade has been slow. Serious doubts have been voiced about its role: it is unlikely, for instance, to participate in any of the contingencies that Europe might face, even if German forces were authorised to fight outside the Nato area.

The fact that Germany is abandoning the European Fighter Aircraft deal with Britain has raised doubts about its commitment to maintaining modern armed forces. Events in the Balkans are a reminder that it is difficult to mount any serious military operation without active American support. It has become pointless, therefore, to push the Community forward as a credible alternative to Nato. Only last week the French Defence Minister, Pierre Joxe, was talking about a greater French role in Nato's political structures, if not yet its military command; and he and his British counterpart, Malcolm Rifkind, mentioned Franco-British co-operation.

If Germany and France cannot co-operate within the ERM, little else will hold their alliance together. And if the two countries start pulling in different directions, life will become more difficult for their partners. But this would at least reinforce the importance of maintaining the wider framework of the European Community.

It is becoming harder for the EC to resolve the national differences that triggered past conflicts. But it is still the best hope for containing them.

(Photograph omitted)