France’s Hollande aims anti-austerity message directly at Germany

May 7, 2012

Francois Hollande said he wanted to make Berlin his first stop as president of France, but he warned that the Franco-German partnership was going to have to change and that Europe’s key word from now on was “growth.”

But while Chancellor Angela Merkel said she would welcome Hollande “with open arms” in the German capital, she made clear that she would not accept his plan to renegotiate the European Union’s controversial austerity treaty or pump E.U. funds into the continent’s stagnant economies.

The stage was set Monday for a test of wills between Hollande, the Socialist who defeated conservative Nicolas Sarkozy in elections Sunday, and Merkel, another conservative who, together with Sarkozy, imposed the treaty in December on often reluctant E.U. partners to force a decline in deficits and debts.

Both leaders were setting out markers for negotiations likely to begin as soon as Hollande officially takes office May 15, or sooner. The goal will be to reach a Franco-German agreement before an informal E.U. summit conference in Brussels around June 1 to discuss what some officials have characterized as a “growth pact” to complement the austerity pact.

Although the German and French starting positions seemed far apart, analysts suggested there was a lot of room for compromise despite Merkel’s open support for Sarkozy during the campaign. Moreover, they added, Merkel and Hollande both know that Franco-German friendship is vital to both countries and has been a pillar of national politics on both sides of the Rhine since Charles de Gaulle reconciled with Konrad Adenauer half a century ago.

“It is in the interest of Merkel and Hollande to have a functioning and even a constructive relationship very quickly,” Nicolas Veron of the Bruegel research institute in Brussels noted in a recent panel discussion.

Even before Sunday’s runoff election, senior Hollande aides were in Germany reassuring Merkel’s government, according to reports in the German news media. A note summarizing their discussions predicted that the new French president would seek “a pragmatic solution” to the standoff and “wants to align himself in continuity with Franco-German efforts for Europe,” the reports said.

‘A dimension of growth’

The European Union’s 27 member nations already declared at their last summit, held March 2, that the debt crisis was on its way to resolution and that they would increasingly be looking for ways to stimulate their economies. The main difference between Merkel and Hollande is over how that should be done.

Throughout his year-long campaign to unseat Sarkozy, Hollande pledged to reopen the December treaty to add “a dimension of growth” to its requirements — which have triggered painful budget cuts — that E.U. governments bring down deficits under threat of fines. This could be done, he and his aides suggested, by adding capital to the European Investment Bank to promote more business loans, or by issuing E.U. bonds backed by the European Central Bank.

“Europe could at last decide to raise funds,” Hollande said in an interview with the Slate Web site published Monday. “This is the challenge of ‘eurobonds’ or ‘project bonds.’ ”

In his victory speech Sunday evening, Hollande said large numbers of other Europeans beside France were eager for such relief from the austerity that has bogged down their economies and produced long unemployment lines.

“This is a strong message to the rest of Europe, which is falling into recession, that things can change,” said Arnaud Montebourg, a leading Socialist and a likely senior official in Hollande’s government.

No repeat of ‘Merkozy’

Merkel has suggested — although cautiously — that she would not be averse to an E.U. mechanism designed to stimulate growth. But reflecting German insistence on budgetary rigor, she has made it clear she would not tolerate any kind of deficit funding or eurobonds to finance projects. Most of all, she has repeatedly insisted, she will not hear of reopening the December treaty, which was negotiated in an all-night session after weeks of diplomacy led by her and Sarkozy.

“We in Germany are of the opinion, as am I personally, that the budgetary pact is not negotiable,” she said at a news conference Monday in Berlin that was relayed by news services. “It was negotiated and signed by 25 countries.”

The search for economic growth, she and her aides have said, should begin with structural reforms to loosen the labor market, reduce taxes and make businesses more responsive to changing demands. Those are the types of reforms that were undertaken more than a decade ago in Germany, they said, which contributed to making Germany’s economy the envy of other European countries today.

Whatever the solution reached in Brussels, Hollande said in the Slate interview, the Sarkozy-Merkel pairing — derided in Paris as “Merkozy” — will not be repeated during his term. Sarkozy was often criticized in France for following in Merkel’s footsteps. In their eagerness to combat the crisis, Hollande charged, the two leaders often rode roughshod over the other E.U. member states.

“In recent years, the Franco-German relationship was too exclusive,” he added. “European authorities were neglected and some countries, notably the most fragile, had the unpleasant impression they were facing a directorate.”

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