Hollande’s version of growth involves spending more money to stimulate jobs and economic recovery. Merkel’s version remains focused on slow-moving economic measures, such as making it easier to hire and fire workers, that increase short-term pain before yielding long-term benefits.
As opponents of austerity won elections in both France and Greece this weekend, some analysts and government officials, including some at the International Monetary Fund, have suggested giving governments more time to reduce their deficits, thus taking some of the bite out of steep budget cuts.
Hollande, the Socialist victor in French elections on Sunday, has pushed for larger changes to the austerity pact that was signed by 25 of the European Union’s 27 members earlier this year. But Merkel has all but ruled out any large-scale stimulus programs to jolt struggling countries out of their doldrums, and expectations are low that any large-scale new remedies will come from the May 23 meeting in Brussels.
“Growth through structural reforms is sensible, important and necessary. Growth on credit would just push us right back to the beginning of the crisis, and that is why we should not and will not do it,” Merkel said in a speech to the German parliament on Thursday.
Instead, European leaders who will meet over dinner are expected to discuss measures such as boosting the lending capacity of the European Investment Bank, cracking down on tax evasion and improving financing for small businesses.
Both Merkel and Hollande “know they cannot have an open dispute, because that would kill the euro zone. So they are both willing to compromise somewhat. The question is how much,” said Sebastian Dullien, a senior policy fellow at the European Council on Foreign Relations in Berlin.
The strains are playing out against the backdrop of more uncertainty in Greece, where politicians who are trying to form a post-election coalition are likely instead to opt over the weekend for new parliamentary elections in June.
For now, the 17 countries that share the euro currency appear c
loser to writing off a member, Greece, than ever before in their 13-year history. But some of Merkel’s allies have said they could envision once again reducing the interest payments that Greece is making on its emergency bailout loans.
If there are to be new elections, Europe’s willingness to offer concessions, however small, may be a determining factor in how well pro-bailout politicians do the second time around, after a first vote in which they were rejected two to one.
One of those pro-bailout leaders, Socialist Evangelos Venizelos, took up efforts to form a government Thursday, and called a meeting with Fotis Kouvelis, the leader of a small center-left party that favors remaining on the euro, “a good omen,” raising the prospects that the country could head off new elections.
Other proposals that may be discussed at the May summit but are likely to be more controversial include a European-wide financial transaction tax that is favored by euro-zone leaders as a way of raising revenue, but strongly opposed by Britain, which is a hub of the financial industry and does not use the euro.
“I think people want to see action,’’ said Peter Bofinger, a member of Merkel’s independent panel of economic advisers who has been an outspoken critic of the German response to the crisis.
Sony Kapoor, managing director of Re-Define, an economic think tank, said the election results in France and Greece show that “politically it has become imperative’’ for leaders to acknowledge the limits of their austerity plans.
“It is quite remarkable how much people are willing to take and sacrifice if it can be shown that tomorrow and the day after tomorrow will look better than today,’’ Kapoor said.
Correspondent Anthony Faiola in London contributed to this report.