Goodbye Merkozy - Will new French president François Hollande get along with Angela Merkel?

European leaders are adjusting to the idea that France now has a new Socialist President, who hopes to pull the continent in a more anti-austerity direction.

Reuters/Montage RFI

For those who wondered during the campaign whether François Hollande was just talking tough in the hope of winning votes, his victory speech last night made things crystal clear.

“Europe is watching us”, he said, declaring that the French vote would give hope to other countries that “austerity is not the only way”. And he went on to say that he would shortly be heading for Berlin to give Mrs Merkel that message in person - it will be his first trip.

London markets are closed as it’s a public holiday but French stocks opened sharply down, although traders said they were more concerned about the turmoil in Greece.

The Paris stock exchange’s CAC 40 index opened 1.57 percent down, having already tumbled 1.9 per cent on Friday.

And all eyes are focused on the Franco-German relationship. Germany’s Angela Merkel had publicly backed Nicolas Sarkozy, worried by Hollande’s talk of re-negotiating the hard-fought fiscal pact agreed by 25 of the 27 EU countries in March.

Hollande insists he wants more emphasis on growth and less on austerity, but Berlin is fiercely opposed to any watering down of austerity measures and fiscal discipline.

Hollande’s aim to promote growth in France will not be straightforward. He has little room for manoeuvre but plans to raise taxes and slow down reforms to the public sector in the hope of boosting spending.

But some economists fear that this will simply undermine market confidence in the French economy, leading to further problems for France and its Eurozone partners.

They maintain France’s economic situation will not improve without deep structural changes and more business-friendly measures.

In Greece, Spain and elsewhere in Europe anti-austerity voices are becoming increasingly loud, and even the European Commission and European Central Bank occasionally make sympathetic noises.

But the bottom line is that it is Germany who holds the purse strings in Europe.