We Stand Divided.(International Edition; INTERNATIONAL)

Byline: Stefan Theil

Merkel and Sarkozy just can't agree on how to deal with the economic crisis.

After weeks of fiddling while the global financial system burned, the Europeans finally got together in mid-October to support their banking systems with a coordinated [euro]1.5 trillion bailout, in a move that may have marked the turnaround in the crisis. The various national packages of guarantees and bank recapitalization were sensible and seem to be kicking in. Money markets have begun to unfreeze. Last week buyers seemed finally to be returning to Europe's battered stock markets, with the Dow Jones Euro Stoxx index climbing 12 percent for the week. Whether this is the start of a recovery or just the segue into a next phase of the crisis is, of course, unclear. But it has exposed how the European Union works--or doesn't--and the fissures between two of its biggest members.

For all of European leaders' assertions that this is "Europe's moment"--both French President Nicolas Sarkozy and German Chancellor Angela Merkel see the crisis as a vindication of Europe's more "social," less market-driven economic models--they've been deeply at odds over how exactly that moment of glory should be seized. Just as important, they can't seem to decide who should seize it. As a result, the upheaval in the global balance of economic power finds Europe once again looking inward, busy with its internal divisions. Hardly a day seems to pass in which Sarkozy, who currently holds the rotating EU presidency, announces a bold new plan, only to find himself rejected by Berlin.

The dispute is as much over style--Sarkozy tends to shoot from the hip without consulting EU partners, while Merkel prefers to first tie the strings together behind the scenes--as it is over substance. Whether it's Sarkozy's plan for a Europewide scheme to part-nationalize "strategic" companies or his proposal to create a central "economic government" for the 15 countries using the euro (with himself at the head through the end of next year), the Germans have been vehemently opposed. Merkel's economics minister and political ally Michael Glos says the French proposal to buy up companies, for example, "contradicts every successful principle of our economic policy"--announcing in public what Merkel is known to say in private.

It's hard to overestimate the disdain and distrust between Paris and Berlin. At the root is French industrial policy, where the Germans have watched in horror as Paris has managed, case after case, to assert French control over what the Germans thought were joint projects, while at the same time shutting German ...