Ghosts of the future rise to haunt Chirac

France's continuing Gaullist vision is steadily pulling it apart from Germany

Jacques Chirac, the French President, is living through a bad dream, though not quite as terrifying as Mr Major's nightmares. The future for Mr Chirac holds the shameful possibilities of France failing the test for entry into monetary union, the fracture of his nation's relationship with Germany, yet more national strikes and street protests and even the prospect (after the National Assembly elections in 1998) of co-habitation with a socialist prime minister. All these phantasms appear horribly real.

You could sense the tension when Mr Chirac submitted himself to a rare question-and-answer session with five journalists on French television last Thursday, just before going off to the Dublin summit. While he waited to speak, he looked grim, even angry. From the viewers' point of view, however, it made for a good programme. First there were brief film reports which portrayed France's problems. Then each journalist in turn aggressively interrogated the President on different areas of his policy.

"We are a profoundly conservative country, in which it is extremely difficult to get things done, confronted as one is by traditions and fears," Mr Chirac told his fellow citizens in the interview. "There is nothing one can undertake without immediately raising an adverse reaction." To become president and find oneself powerless to change things is a nightmare indeed.

Among Mr Chirac's ordeals is the deterioration in France's historic relationship with Germany. For 40 years, the most important objective of French foreign policy has been to run Europe with Germany - as a partnership of equals until German reunification, and since then more as France the jockey, Germany the horse. Now France is beginning to discover that, so far as economic policy within a monetary union is concerned, Germany will go her own way.

There have been increasingly frequent meetings between President Chirac and Chancellor Kohl to resolve the issue. But the origins of the disagreement lie very deep. On the German side, they go back to the country's experience of inflation in the early 1920s. The American dollar was worth 14 marks in July 1919, 493 marks in July 1922, and then hyper-inflation really took hold. By January 1923 the dollar was worth 18,000 marks, by August of that year over 4 million marks and by October 1923, it was worth 25 million marks. Wages were paid by the cartload. That terrible episode remains the most important influence upon German economic policy and explains its rigid stance in the monetary union negotiations.

In order to ensure that the Euro is as hard as the Deutschmark, and thus preserve the nation's wealth, Germany has wanted to create a system in which monetary union would operate according to rules rather than political judgement, going further along this path than even the Maastricht Treaty permits. Countries which incurred budget deficits of more than 3 per cent of national output would suffer draconian fines, which would be automatically imposed. This is carrying to an extreme the argument which has led many countries recently to allow central bank governors, rather than finance ministers, to take interest-rate decisions.

The French view, on the other hand, is essentially Gaullist. The Euro must be an instrument at the service of European business in its battle with American and Asian commercial interests. France wants a cheap, undervalued Euro in relation to the dollar and the yen. France wants to be able to say to the world what an American Secretary of the Treasury once remarked about the dollar: "The Euro: it is our money, but it is your problem." And this is of a piece with other aspects of French foreign policy, which delights in opposing the Americans in the Middle East, in Central Africa, within Nato and within the United Nations.

More seriously, Mr Chirac knows that he cannot hand over the conduct of economic policy, lock, stock and barrel, to central bankers and to technocrats, who lack all democratic legitimacy, which is what the German position ultimately implies. Mr Chirac, as a disciple of Charles de Gaulle, whose grave he regularly visits, is unable to agree to this. He has arrived at the British position by a different route.

France's response to German demands has been to weaken the criteria for judging whether states participating in monetary union are running excessive deficits, to bring in the judgement of finance ministers and to propose that the European central bank should be subject to political supervision by means of a council. At the Dublin summit, President Chirac made some progress along these lines. Euro-members running an excessive deficit will now be exempt from penalties in the event of natural disaster or unusually severe recession. Where economic growth declines moderately, European finance ministers will have a say before fines can be levied. Yet to be tackled is the notion of political oversight of the European central bank.

In the detail of negotiation, however, it is easy to forget the big, historic issues which propel each participant one way rather than another. Thus far it has seemed as if only Britain were subject to forces taking her in a different direction from her neighbours. Now France and Germany find that they are being pulled apart. The Maastricht Treaty and the road to monetary union is becoming a ghastly experience for all concerned, for Mr Major, for President Chirac and for Chancellor Kohl alike. Welcome to the Common European Nightmare.