Euro crisis: Can Merkel and Hollande find compromise?

 
French President-Elect Francois Hollande celebrates victory in the place de la Cathedrale on May 6, 2012 in Tulle, France Francois Hollande made opposition to austerity a major theme of his campaign

The relationship between France and Germany has been the backbone of Europe since World War II.

Helmut Kohl and Francois Mitterrand had famously held hands as they recalled the waste of lives at the Battle of Verdun.

"Europe cannot move ahead without the Franco-German engine," said former French President Valery Giscard d'Estaing.

General de Gaulle had described Germany as the horse and France the jockey. President Nicolas Sarkozy described the two countries as "opposite twins".

Never have the leaders of France and Germany been so important to the future of Europe as now - with the eurozone crisis drifting dangerously.

Hours after being sworn in as French president, Francois Hollande will fly to Berlin for dinner with Chancellor Angela Merkel. She has said she will welcome him "with open arms".

Harsh lessons

Start Quote

Austerity can no longer be the only option”

End Quote Francois Hollande

But her embrace will hide some embarrassment. She had openly backed President Sarkozy during the French election and nearly campaigned for him.

In Berlin there is suspicion of Mr Hollande. They do not like the fact that during the campaign he raised the standard against austerity and championed growth. Many saw that as a bid to reclaim French leadership in Europe.

Politically they come from different sides of the tracks.

Chancellor Merkel, who grew up in former communist East Germany, is mindful of German history and the lessons from the Weimar Republic - that inflation left unchecked could destroy democracy.

She has praised the wisdom of the Swabian housewife, a model southern German citizen, famed for frugality and thrift. Her instinctive attitude to the Greeks and others was that they had to be taught a lesson, that they needed to live within their means.

Former Greek Prime Minister George Papandreou had pleaded with Angela Merkel for easier terms for the first bailout loan.

She had replied: "We want to make sure nobody else will want this." The bailout terms were intended as a harsh lesson to others.

'Tax and spend socialist'

Mr Hollande is a socialist who cut his political teeth during the presidency of Francois Mitterrand.

French President Nicolas Sarkozy looks at German Chancellor Angela Merkel at a press conference in 2008 German Chancellor Angela Merkel had openly backed Nicolas Sarkozy's bid for a second term

His keenest instinct is to preserve the French way of life, with its social welfare model. During his campaign he promised to raise the minimum wage, hire tens of thousands of new teachers and water down the retirement age.

Politically she regards him as a tax-and-spend socialist.

Their most critical division is over austerity. Francois Hollande does not believe the policy is working.

"Austerity can no longer be the only option," he said. During the campaign he pledged to renegotiate the so-called "stability pact" aimed at enforcing discipline in the eurozone.

For Chancellor Merkel this pact is the key to the future survival of the single currency. She has repeatedly stated it is "not open to new negotiations".

Mr Hollande shot back, saying "it is not for Germany to decide for the rest of Europe".

The view in Berlin is that the new French president did not level with his audiences. Privately they made it clear that there could be no renegotiation. They believe that Mr Hollande understands that.

Compromise?

They have not, however, been encouraged by remarks from the Socialist Party spokesman Benoit Hamon, who told French television: "We did not vote for there to be a president of the European Union named Mrs Merkel, who decides on the fate of all the others."

Politically they understand it will be difficult for Mr Hollande to back away from his pledge to renegotiate the pact - at least until after the parliamentary elections in June.

Officials then expect some compromise.

Chancellor Merkel will accept a growth commitment to be attached to the stability pact. She will be prepared to see EU funds diverted to major infrastructure projects and to see the capital base of the European Investment Bank expanded.

What she will not compromise on is her opposition to growth being financed through borrowing.

Some of these discussions will be tense and difficult. Mrs Merkel, for instance, will oppose the European Central Bank being able to lend directly to governments.

One of the first questions that will be put to the new French leader is where he stands on Greece. Does he go along with the German government in insisting that Greece accept the terms of the bailout deal if it is to stay in the eurozone?

Or does he believe that there will have to be some easing of the terms through a renegotiation? That decision may have to be taken within weeks.

Mr Hollande also appears to want France and Germany to be less dominant.

"The Franco-German relationship has been exclusive," he said. "European institutions have been neglected and some countries, notably the more fragile ones, have had the unpleasant feeling of facing an executive board."

The Germans are anxious the new French president may compete for allies within the EU.

The key for Berlin is that Mr Hollande sticks to his promise to balance the budget by 2017 and to bring the French deficit down to 3% by next year.

Reality, officials in Berlin say, will give the French president very little room for manoeuvre.

Whatever their differences, the crisis in the eurozone will put them under huge pressure to compromise.

After all, Chancellor Merkel and Nicolas Sarkozy did not like each other at first but ended up being called "Merkozy" - such was their closeness.

 
Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    +2

    Comment number 11.

    @8 "Merkl must accept she's been outvoted. You can't tie other people's hands this way."

    You can if those hands have taken your money

  • rate this
    -1

    Comment number 10.

    Action can be taken at will. As usual it is all about banks. Merkel cannot let the French banks get too damaged - particularly Paribas - as they have an unusually important position in world trade. This is all about Southern Comfort on the rocks

    http://webofdebt.wordpress.com/2012/04/18/the-european-stabilization-mechanism-or-how-the-goldman-vampire-squid-just-captured-europe/#more-3505

  • rate this
    -1

    Comment number 9.

    The fiscal treaty is aspirational, if the euro survives. As it appears now, the survival of the euro is seriously under threat within months. Merkel must know the game is up and that money must be injected for growth in employment. Debt can be extended further without the catastrophic consequences now about the destroy the euro and the EU as it has been configured. Germany is not the fatherland.

  • rate this
    +8

    Comment number 8.

    Why isn't the Fiscal compact open to renegotiation? So far, the only country to have ratified the treaty is Greece (under pressure from its creditors). The treaty has not gone through the French Parliament, so Merkl has no business telling Hollande to stick to a treaty neither he nor his country agreed to.

    Merkl must accept she's been outvoted. You can't tie other people's hands this way.

  • rate this
    -2

    Comment number 7.

    In his acceptance speech just now, Hollande said that he would 'seek a new pact on growth' with his EU partners. ie he appears to have withdrawn from his call for a renegotiation of the treaty. Maybe Juncker's visit helped?

  • rate this
    -2

    Comment number 6.

    4* I agree. Feedback from Greece is that voters are moving back to centre so after next election there will be a coalition that will get bail out. There will be concessions in a typical EU fudge but the Greeks will get cash. This of course only postpones problem as austerity will continue and eventually it will bring populace to breaking point. Ditto Spain and Portugal (and maybe Italy).

  • rate this
    0

    Comment number 5.

    merkoland or horkel?

  • rate this
    -3

    Comment number 4.

    Hollande and Merkel will reach a compromise, she will give the orders, and he will nod his head. As for Greece, they will not be allowed to default, or to leave the dream currency in case it costs Germany money and, or, destabilises the other dying Mediterranean economies. A solution will be found, paid for by the malleable , politically unrepresented taxpayers of the EU.

  • rate this
    -4

    Comment number 3.

    Re: a compromise between French and German leaders.



    Marshal Petain proved it was certainly possible to meet in the middle of the road.

  • rate this
    -2

    Comment number 2.

    '...She had replied: "We want to make sure nobody else will want this." The bailout terms were intended as a harsh lesson to others...'

    This is not a viable position

    If it is not a pragmatic solution it will fail

    Greece cannot stay within the euro with the debt

    Most want the euro to continue

    Issue is not Greece but the queue behind

    All that is left is printing, inflation & austerity lite

  • rate this
    +5

    Comment number 1.

    As I've said before, Hollande can make all the promises he likes - unless the Socialists do well in the Parliamentary elections, then he has no way of enacting them.

    Whilst the Parliamentary results usually reflect the Presidential one, that's not a given right now, and let's not forget Hollande scraped victory. The effect of his Presidency we'll not see until after the Parliamentary elections.

 

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