BERLIN, Germany – It started with a handshake, not a kiss. When Chancellor Angela Merkel and new French President Francois Hollande finally met in person on Tuesday evening, there was little of the warmth that marked her meetings with Nicolas Sarkozy in recent years.
Aides had downplayed the rendezvous as simply aimed at getting to know one another rather than about hammering out any policy. Yet the future of Europe could hinge on whether these two leaders find a way to work well together.
Rarely have two people met for the first time with so much baggage. Merkel refused to meet with Hollande during his election campaign, and made the highly unusual step of publicly backing his rival, fellow conservative Sarkozy. Hollande for his part seemed to be campaigning as much against Merkel as the incumbent, pledging to renegotiate the fiscal pact that she had championed.
Now the two have finally met face-to-face and the encounter seemed cordial if hardly warm. Following the ceremonial reviewing of the guard of honor – during which Merkel had to gently nudge Hollande in the right direction on the red carpet – the two held an hour -long meeting. They then addressed the throng of international journalists in a joint press conference during which Merkel remained stony-faced during much of Hollande’s comments, interspersed with the odd smile.
The pair did seek to downplay their differences and strike a friendly tone with Merkel even joking that the lightning that had struck Hollande’s plane on his way to Berlin was perhaps a “good omen.”
“I’m not sure whether there is sometimes more divergence perceived in the public realm than there really is,” the chancellor told the press conference. “We are aware of our responsibility, as Germany and France, for a positive development in Europe. Carried by this spirit I believe we will of course find solutions for the different problems.”
Both tried to show a united front on Greece, which risks ejection from the euro zone if it backs anti-austerity parties in the fresh elections likely after the parties failed to form a government. “Just like Frau Merkel,” Hollande said, he wanted Greece to remain in the euro zone while insisting that Athens meet the terms of the bailout agreement.
Yet when it came to the crux of the differences between the two, on austerity versus growth, it was obvious that the only thing that had been agreed so far was that they disagree.
After all, it remains to be seen how Merkel’s strict stance on rapidly reducing budget deficits can be married with Hollande’s plea for some kind of stimulus package to boost growth.
Hollande reiterated his promise to reopen talks about the fiscal pact, the agreement on strict budget discipline which he has said France will not ratify unless a growth element is also adopted.
“I said in the campaign, and I repeat today, that I want to renegotiate what was established at a certain moment,” Hollande told reporters. “Everything that can contribute to growth must be put on the table. I don’t want growth to be just a word, but tangible measures.”
He mentioned boosting competitiveness, as well as Euro bonds – essentially pooling the debt of euro zone members – something Merkel has so far flatly rejected.
He did not, however, mention tinkering with the European Central Bank’s mandate, surely a red line if ever there was one in Berlin.
For all the inauspicious beginnings, observers predict that the two will eventually hit it off. Both play on their modest, down- to-earth style and exude an air of pragmatism rather than charisma. Hollande depicts himself as “Mr Normal” in contrast to the Bling Bling of his predecessor Sarkozy, while the unassuming Merkel is often seen doing her own grocery shopping. And both are said to have a wry sense of humor in private.
Furthermore, Hollande’s gesture of appointing Germanophile Jean-Marc Ayrault as his prime minister will have gone down well in Berlin.
Yet, it is hardly a meeting of equals. Merkel is an old hand in European politics now, in her seventh year in office, while Hollande’s previous executive experience has been confined to serving as mayor of the small town of Tulle.
Furthermore Germany is the EU’s economic powerhouse, with its export-driven economy keeping the rest of the euro zone out of recession, according to figures released on Tuesday. And Berlin has long been calling the political shots in Europe, with the fiscal compact being dreamed up by Merkel, as a way of preventing EU states from getting into deeper debt in the future.
At the same time Merkel is increasingly isolated in Europe, as there is a growing realization that austerity is choking off growth. Hollande knows that other leaders, including conservatives like Italy’s Mario Monti, also want Berlin to budge on its debt reduction fixation.
Hollande came to Berlin straight from his inauguration ceremony in Paris. After beating Sarkozy on May 6 he will feel he has a mandate from the French people to push for a change of direction in Europe. Yet he also faces a tough economic situation back home, with just 0.1 percent growth in the first quarter and growing unemployment, now at a 13-year high of 10 percent. If the economy were to contract even further, it could make it very difficult to fulfill many of his campaign pledges, such as reversing Sarkozy’s pension reforms.
Merkel has her own problems, despite the strong economy. Her party, the conservative CDU, has just suffered a bruising defeat in the state of North Rhine-Westphalia. Her coalition is increasingly fractious, with Bavaria’s CSU leader Horst Seehofer publicly slamming the CDU candidate in North Rhine-Westphalia Norbert Roettgen on TV for his campaign, while the FDP is unpredictable due to an ongoing leadership crisis.
The fact that she needs a two-thirds majority in the Bundestag to ratify the fiscal compact means she is dependent on the opposition SPD. And while the party has broadly backed her euro policy, it has been emboldened by Hollande’s victory and the strong showing in NRW. On Tuesday the party’s leaders said that they would delay the vote on the fiscal pact, originally scheduled for late May, saying it wanted to see concrete growth measures as well as austerity.
That would leave time for Merkel and Hollande to agree to some sort of compromise solution.
The pair said they will seek an agreement ahead of the next big summit of EU leaders in June. “It will be very important that Germany and France present their ideas together at this summit, and we have talked about the preparation,” Merkel said.
They will see each other before that, meeting at an informal dinner of EU leaders on May 23, as well as at the forthcoming NATO and G8 summits.
However, Hollande is unlikely to show much willingness for compromise with Berlin just yet. After all his party is facing legislative elections in mid June and he will want to make sure he is not seen to be backsliding on campaign pledges.
Hollande wants his five-year term to start with his Socialist Party securing control of the National Assembly so that he can push through his agenda. Otherwise he faces a frustrating period of “cohabitation” with a prime minister from the opposing camp, such as occurred when conservative Jacques Chirac’s presidency coincided with the premiership of Socialist Lionel Jospin from 1997 to 2002.
As such Merkel cannot expect Hollande to veer from his insistence on growth measures. And for all his unassuming manner, he could well prove to be a more difficult partner than Sarkozy in the long run.
Nevertheless Merkel is also likely to stand firm on many issues. Asked on Tuesday night if she feared Hollande’s campaign promises she replied coolly: “I am seldom afraid, as fear is not a good counselor in politics.”
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Who’s an economy for? Voters in France and Greece have made it clear it’s not for the bond traders.
Referring to his own electoral woes, Prime Minister David Cameron wrote Monday in an article in the conservative Daily Telegraph: “When people think about the economy they don’t see it through the dry numbers of the deficit figures, trade balances or inflation forecasts — but instead the things that make the difference between a life that’s worth living and a daily grind that drags them down.”
Cameron, whose own economic policies have worsened the daily grind dragging down most Brits, may be sobered by what happened over the weekend in France and Greece – as well as his own poll numbers. Britain’s conservatives have been taking a beating.
In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other.
It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.
That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.
You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.
The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.
If Hollande’s new government pushes Angela Merkel in this direction, he’ll end up saving the euro and, ironically, the jobs of many conservative leaders throughout Europe – including Merkel and Cameron.
But he also has an important audience in the United States, where Republicans are trying to sell a toxic blend of trickle-down supply-side economics (tax cuts on the rich and on corporations) and austerity for everyone else (government spending cuts). That’s exactly the opposite of what’s needed now.
Yes, America has a long-term budget deficit that’s scary. So does Europe. But the first priority in America and in Europe must be growth and jobs. That means rejecting austerity economics for now, while at the same time demanding that corporations and the rich pay their fair share of the cost of keeping everyone else afloat.
President Obama and the Democrats should set a clear trigger — say, 6 percent unemployment and two quarters of growth greater than 3 percent — before whacking the budget deficit.
And they should set that trigger now, during the election, so the public can give them a mandate on Election Day to delay the “sequestration” cuts (now scheduled to begin next year) until that trigger is met.
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BRUSSELS, Belgium — The ground is shifting in Europe’s debt crisis. The edifice of economic austerity built under the guidance of German Chancellor Angela Merkel is starting to wobble.
There’s a new buzz in Brussels about pumping hundreds of billions into a Marshall Plan-inspired fund to get Europeans back to work, devaluing the euro to boost exports or sharing out the euro-zone debt burden.
“This generalized austerity is prolonging the crisis. I can’t accept that. We need growth in Europe,” says Francois Hollande, the Socialist leader tipped to win Sunday’s French presidential election.
“With every day that goes by, I have the feeling that my initiative is more and more understood in Europe,” Hollande said in comments posted on his website Monday.
Hollande is enjoying an eight-point lead over incumbent Nicolas Sarkozy in opinion polls ahead of Sunday’s vote. His expected victory is the main catalyst behind the emerging pro-growth emphasis in Europe, but there are other factors.
Continuing grim economic news — Spain announced Monday that it had sunk into a second recession in just over two years — is fueling doubts that Europe’s three-year dedication to spending cuts and tax hikes may not be the best way to cure the continent’s economic malaise.
“Europe has misdiagnosed its problems in important respects and set the wrong strategic course,” former U.S. Treasury Secretary Lawrence Summers wrote in a column this weekend. “Only if growth is restored can the euro endure and European financial problems be resolved.”
The Spanish newspaper El Pais reported Sunday that the EU was preparing a 200 billion euro “sort of Marshall Plan” to fund infrastructure projects, green energy and advanced technology.
EU spokeswoman Pia Ahrenkilde Hansen said Monday that such figures were “highly speculative.” However, the EU is putting together a plan to boost growth for approval at what is expected to be a highly significant summit of European leaders on June 28-29.
Wary that the new focus risks further spooking markets, Ahrenkilde Hansen told reporters that going for growth did not mean a return to slack finances. “We are not talking about an alternative to fiscal consolidation,” she said. “The issue is not either fiscal correction, or growth. We need both.”
The late June EU summit is likely to be Hollande’s first if he succeeds in unseating Sarkozy.
Much has been made of the Socialist leader’s expected clash with Merkel due to his criticism of the fiscal discipline treaty that is the centerpiece of her response to the treaty.
Both Merkel and Hollande in recent days endorsed two of the key pro-growth ideas expected to be on the summit agenda: fast-tracking the use of remaining money from the EU’s budget for developing its poorest regions, which ran at 360 billion euros from 2007-2013, and boosting the firepower of the EU’s lending arm, the European Investment Bank.
EU Economics Commissioner Olli Rehn has suggested that lifting its capital by just 10 billion euros could enable the EIB to leverage lending of 180 billion euros.
Although they have continued to spar in media comments, Hollande and Merkel have been preparing the ground for non-confrontational relationship. There are signs of a softening of the Frenchman’s demand for a renegotiation of the fiscal discipline treaty.
Defeat for Sarkozy would however be a blow for Merkel, who offered unprecedented support for the incumbent in the early stages of the French campaign.
She also risks losing allies elsewhere.
The Dutch government, one of the strongest supporters of Merkel’s insistence on austerity for southern Europe, fell last week over its own budget-cutting plans and will face a stern challenge from the center left and far right in September elections.
Parties on both political extremes are seen profiting from a wave of discontent in Sunday’s parliamentary elections in Greece to find a successor to the technocratic government which has gone along with the tough conditions set by the EU in return for bailout packages.
Adding to the pressure over the past few days, several key players have joined the chorus calling for a growth initiative, including European Central Bank Governor Mario Draghi; top EU financial services official Michel Barnier; and the UN’s International Labor Organization.
“Austerity has, in fact, resulted in weaker economic growth, increased volatility and a worsening of bank’s balance sheets,” said an ILO report released Monday. “It is high time for a move toward a growth- and job-orientated strategy.
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LONDON, UK — Campaign strategists for both Nicolas Sarkozy and Francois Hollande will be scrambling on Monday to make sense of a first-round presidential vote that left neither with a clear path to victory — and showed a surprise level of support for a far-right candidate.

As many analysts expected, Socialist Hollande scored higher than incumbent Sarkozy in Sunday’s election, but thanks to a surge in the popularity of Marine Le Pen of the anti-immigration National Front party, a easy win is no longer the foregone conclusion that many predicted.
Hollande took 28.8 percent of the vote against Sarkozy’s 26.1 percent, meaning they will face each other in a run-off vote on May 6. But what was expected to be a simple referendum on differing plans to rescue France’s struggling economy has been complicated by Le Pen’s showing of 18.5 percent.
As horse-trading begins for the support of those who voted for the eight lower-polling candidates now eliminated from the race, the problem now facing both Hollande and Sarkozy is how they can capitalize on the far-right turnout.
Some analysts said center-right Sarkozy is most likely to benefit from Le Pen’s success, others argued it could derail him. Meanwhile, Jean-Marie Le Pen, who founded the party his daughter now leads, said the result put the National Front on track for big wins in June parliamentary elections.
Le Pen’s success also raises the possibility that French opinion was swayed by a series of shootings in southern France last month involving a 23-year-old terrorist who claimed allegiance to al-Qaeda. At the time, Le Pen said the incident showed that the “Islamic fundamentalist threat has been underestimated in our country.”
That said, Le Pen has doubtlessly attracted considerable support for her protectionist economic policies and for being the only conservative candidate proposing to take France out of the euro.
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