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French, German rifts show already

Germany's Angela Merkel rejects the pledge by newly elected French leader Francois Hollande to renegotiate a European treaty to rein in public debt.

May 07, 2012|By Henry Chu, Aaron Wiener and Kim Willsher, Los Angeles Times
  • President-elect Francois Hollande signs an autograph as he leaves his campaign headquarters in Paris.
President-elect Francois Hollande signs an autograph as he leaves his… (Mehdi Fedouach / AFP/Getty…)

PARIS — Exuberant supporters were still out celebrating Francois Hollande's election as president of France when the first fissures began opening up in the Franco-German motor that drives the rest of Europe.

Although officials on both sides of the Rhine vowed to continue their close political cooperation, German Chancellor Angela Merkel issued a blunt rejection Monday of Hollande's pledge to renegotiate a Europe-wide fiscal treaty to rein in public debt.

Nor would she countenance deficit spending to boost the economic growth that Europe so desperately needs, pouring cold water on another of Hollande's campaign promises. Growth could come only through "structural reforms," the conservative Merkel said.

It was an awkward start for the European Union's newest but most important power couple, the leaders of its two biggest economies and political heavyweights, who together hold the key to how the continent deals with its dire debt crisis. The global economy now depends in major part on what results from the collision between rigid German insistence on fiscal rectitude and the wave of anti-austerity anger sweeping through Europe, with left-leaning Socialist Hollande riding its crest.

Analysts say that an eventual compromise is likely, even inevitable. For all her unyielding words, Merkel will find it difficult to ignore the burgeoning popular opposition across Europe to Berlin's prescription of deep cuts in public spending. Equally, Hollande will no doubt discover where the rhetorical luxuries of campaigning end and the tough realities of governing begin.

"Germany, just like France, knows that the two have to get into a close relationship as soon as possible. Given the sovereign debt crisis, the pressure's extremely high for neither side to show any major policy differences," said Daniela Schwarzer of the German Institute for International and Security Affairs. "If Germany and France appear divided, the credibility of promises to rebuild the Eurozone is harmed."

The markets, alert for the first signal to beat a retreat, are unlikely to give Hollande and Merkel much time to sort out their differences.

For now, the momentum is with Hollande after his solid defeat Sunday of outgoing President Nicolas Sarkozy, who was such a close ally of Merkel that pundits dubbed the pair "Merkozy." Hollande is expected to take office May 15, becoming France's first Socialist president in 17 years.

Besides France, voters in economically sinking Greece threw their weight behind anti-austerity parties Sunday, and popular protests against austerity have also sprung up in financially troubled Spain, Italy and Portugal.

Significantly, calls for a bigger emphasis on reviving economic growth in Europe have also come from the heads of the European Central Bank and the International Monetary Fund. Experts say that even before Sunday's elections, Merkel had begun to see the writing on the wall.

"This woman is highly pragmatic. I think she feels isolated," said Ulrike Guerot, head of the Berlin office of the European Council on Foreign Relations. "Merkel can feel that there is a pan-European 'enough austerity' argument and doesn't want to go against the wave. She's already starting to go with the wave."

In recent weeks, Merkel has hinted that she might look favorably on some measures to boost growth.

Two weeks ago, she signaled her support for bolstering the European Investment Bank and EU funds for infrastructure projects. EU officials have recommended that the bank increase its lending capacity by an additional $13 billion.

Hollande too has advocated a stronger role for the European Investment Bank. He has also urged creation of joint European bonds to finance infrastructure.

In their quest to find common ground, Merkel and Hollande will have to overcome not just fundamentally different views on how to solve the euro debt crisis but also possible personal tension. Before the election, Merkel publicly backed fellow conservative Sarkozy for a second term and snubbed Hollande, refusing to see or speak to him during the campaign.

She tried to make some amends Monday, telling reporters: "I will receive Francois Hollande in Germany with open arms. The French-German cooperation is essential for Europe, and since we all want success for Europe, we'll begin working together very quickly."

Her spokesman, Steffen Seibert, also attempted to smooth things over, saying that the chancellor had left the door open for dialogue and denying that her refusal to renegotiate Europe's financial pact — which France has not yet ratified — put her in direct conflict with Hollande.

"We will see what proposals and ideas he has and go from there," Seibert said. "Growth is not a new issue but rather the second pillar of our fiscal policy, and not just since yesterday."

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