Hollande proposes ‘new pact’ for Europe in inaugural address

May 15, 2012

Newly installed French President Francois Hollande declared Tuesday that he wanted to “renegotiate” Europe’s response to its economic crisis to focus on stimulating growth, as he opened a new chapter in Europe’s push-pull dispute about whether countries should fix themselves through spending or saving.

Standing in Berlin next to a stony-faced German Chancellor Angela Merkel — who is of the saving, not spending, camp — Hollande noted to reporters that “it was not the first time” leaders held differing views. Merkel said disagreements could be “fruitful.” Both said they would keep working together — and they have little choice.

Hollande began his first day in office in the ornate Elysee Palace in Paris but ended it in Europe’s main sanctum of austerity, the modernist concrete chancellery in Berlin, underscoring the importance of the debate at hand. Adding extra drama to an already tense evening, Hollande’s jet from Paris had to turn back after it was struck by lightning shortly after takeoff. He arrived in Berlin on another plane more than an hour late for the meeting with Merkel, their first.

Hollande presented himself as the leader of a new vanguard in Europe’s battle against recession, favoring policies that stimulate growth through investment over the solutions pushed by Merkel, who holds that excessive debt is the root of Europe’s troubles. He sought to walk a middle line between his insistence during a year-long campaign on the need for growth measures and Germany’s equally strong focus on bringing down government deficits and debts.

The partnership between Merkel and the new French president will help determine Europe’s path at a crucial juncture, as Greece teeters on the verge of leaving the euro, Spain struggles to cut its spending and economists worry about the broader effects of euro-area troubles on the global economy. Merkel and Hollande will meet President Obama at Camp David later this week at the Group of Eight summit, where he is expected to press them on their response plans.

Greece was one of the top priorities of Merkel and Hollande’s meeting Tuesday night, where they greeted each other on a red carpet with a handshake, not the cheek kisses favored by Hollande’s predecessor, Nicolas Sarkozy. At the news conference after their meeting, Hollande took notes as Merkel spoke. Merkel remained impassive as Hollande spoke frankly of their differences, smiling only occasionally, including when he mentioned the lightning that had delayed him. Then they retreated for dinner and more discussion.

“I want to put growth at the heart of our debate,” Hollande said. “It’s true that the word was in the budget treaty, but it was not really emphasized.”

‘Indispensable stimulation’

Earlier in the day, after being sworn in at the Elysee Palace, Hollande said in a speech that he would “propose a new pact to our partners that will join the necessary reduction of public debts with an indispensable stimulation of the economy.”

Both Merkel and Hollande said they wanted Greece to remain in the euro zone. Greek politicians abandoned attempts Tuesday to form a government and instead opted for new elections, jeopardizing the troubled country’s ability to meet its financial commitments. But the French and German leaders suggested that they were willing to give Greece some time to work out its troubles, with Merkel striking a more conciliatory note than she has in recent days.

“We want Greece to stay within the euro,” Merkel said, though she noted that she expected the country to abide by its agreements. “We want to do what we can to help Greece structurally, with growth.”

Hollande said, “I hope that we can tell Greeks that Europe is ready to add measures to help growth and support economic activity so that there is a return to growth in Greece at a time when it is in recession.”

Merkel and Sarkozy were never personally close, with Sarkozy’s penchant for glitz grating on the lower-key German leader, who still lives in a modest apartment on the Spree River and picks up groceries on her way home from work. But the two eventually saw themselves as close partners in the effort to use austerity to lead Europe out of its economic problems, and Sarkozy held up Germany’s export-focused economy as a model in his reelection campaign.

Hollande, by contrast, campaigned on a platform of renegotiating the German-championed austerity pact signed earlier this year by 25 of the European Union’s 27 countries. He spooked Merkel so much that she promised to campaign for Sarkozy, saying she supported him “in every manner,” and she refused to meet with Hollande before the election.

But observers say the new Franco-German couple are likely to get along fairly well. The leaders, both 57, are low-key compromisers, and Hollande is seen as likely to tack rightward while Merkel tacks leftward. Hollande’s new prime minister, Jean-Marc Ayrault, is a fluent German speaker who once taught the language.

“Hollande and Merkel will probably intuitively be much closer in terms of style,” said Daniela Schwarzer, a European Union expert at the German Institute for International and Security Affairs. “You can see that he is a very consensual person who takes into account different interests. Sarkozy cooperated with Germany, but there were quite a few circumstances where conflict went public.”

New pressure for Merkel

Hollande’s mention of a “new pact” for growth Tuesday already seemed to be an opening for common ground with Germany, since it implied leaving the austerity pact intact — a softening of his campaign pledges. And Hollande has said he would stand by the budget-balancing rigor of his predecessor, saying only that he would take an extra year to get there.

Hollande’s sympathy for Keynesian-style stimulus fits better with Obama’s approach to fighting the crisis than with the approach favored by German leaders, who insist that spending cuts will lead to better investor confidence and thus improved economic growth. Now Merkel will face new pressure to agree to economic measures that are not just focused on debt reduction but also actively push money toward growth.

German officials have signaled willingness to compromise with Hollande on measures such as boosting the European Investment Bank’s capital by $13 billion and using extra E.U. structural funds more flexibly. Both tactics would increase the E.U.’s ability to foster growth in struggling countries such as Greece, Portugal and Spain. And German Finance Minister Wolfgang Schaeuble recently said he could tolerate higher wages in Germany, a move that would stimulate spending in his country while making other countries more competitive in comparison.

Hollande, meanwhile, is doing little to fundamentally upend the balance that his predecessor forged with Merkel, a reflection that Germany still controls the money. France’s budget outlook is worse than expected, according to European Commission forecasts released Friday. Germany, meanwhile, grew by 0.5 percent in the first quarter of 2012, E.U. estimates show, keeping the overall euro zone from recession but underlining the deep divides that remain.

Cody reported from Paris.

Michael Birnbaum is The Post’s Moscow bureau chief. He previously served as the Berlin correspondent and an education reporter.
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