Merkel’s French problem
Since the onset of Europe’s debt crisis in September 2009, the response has been largely guided by two leaders — Merkel and Sarkozy. That partnership was key in drafting the bailouts for Greece, Ireland and Portugal, and in the inking of a fiscal accord for the region in December that places strict and enforceable limits on public spending to reassure investors.
Hollande, however, has vowed to renegotiate that treaty. That position led Merkel to take the unusual step of endorsing Sarkozy ahead of Sunday’s vote.
Yet analysts say Hollande — who is set to make Berlin his first official destination as president — will try hard to reach a meeting of the minds with Merkel, who may have to reluctantly agree to new measures aimed at promoting economic growth. Those actions could include new investments in E.U.-funded infrastructure projects aimed at creating jobs and pulling some of the region’s hardest-hit economies out of recession.
Some say Hollande is presenting what could emerge as an alternative view to Germany’s message of cut, cut, cut. Hollande, too, agrees with the notion of balanced budgets — a goal he promises to achieve in France by 2017. But he is seeking to shift more of the burden on the rich — proposing a 75 percent tax rate for the wealthiest French citizens. At the same time, he is eyeing a higher minimum wage and a boost in job growth through the hiring of new educators funded at least in part through tax increases.
Some of his pledges could begin to address the concerns of those economists who say Europe is making things worse by pushing cuts too fast, too soon. But ahead of the election, France’s borrowing costs edged up as investors grew jittery about Hollande’s commitment to running a tight fiscal ship. If he is seen as leaning toward overspending, analysts say, France could quickly come under direct fire from investors, igniting a dangerous new chapter in the debt crisis.
At the same time, without Sarkozy, Merkel could find herself more isolated in the push to keep austerity at the top of Europe’s agenda. It could also make it harder for the Germans to force new waves of cuts later this year if indebted nations in the region miss their budget targets — a likely circumstance given how slowing economies are hurting national coffers across Europe.
“German politicians are worried. They know their domestic public is unsympathetic to the travails of the euro zone’s indebted countries, and what they’re worried about is Hollande coming in and talking a less firm line on cuts,” said Robin Niblett, director of Chatham House, a London-based think tank. “They want to keep the pressure on, and they don’t know how much of a partner they have in Hollande.”
Correspondents Michael Birnbaum in Athens and Edward Cody in Paris contributed to this report.