Hollande to meet Merkel hours after swearing-in to discuss eurozone debt crisis

France's new president François Hollande will fly to Berlin within hours of his swearing-in ceremony on Tuesday for a working dinner with German Chancellor Angela Merkel and talks on the eurozone debt crisis.  

Reuters/Thomas Peter

The day after François Hollande’s victory, Angela Merkel declared that she would welcome him “with open arms” in Germany, but that “the fiscal pact is not negotiable. It was negotiated and signed by 25 countries”.

Hollande of course said during his election campaign that he wanted a re-negotiation of the fiscal pact, which was agreed at a difficult summit in Brussels in December. He wants more emphasis on growth in the pact.

On Thursday Merkel was applauded by lawmakers in Germany’s Lower House when she declared that there was no “magic bullet”, and that growth fuelled by borrowing would simply catapult the eurozone back “to the start of the crisis.”

But in Greece, amid political deadlock following Sunday’s elections, some are hailing Hollande as the new “Roosevelt of Europe”. Alexis Tsipras of the far-left Syriza party has asked for a meeting with the new French president as soon as possible and hopes to persuade him to speak for all those European people who are fed up with austerity, when he meets Merkel in Berlin next week.

Yesterday Hollande held talks with Herman Van Rompuy, president of the European Council, but the chaotic political situation in Athens, which could lead to Greece being simply forced out of the Eurozone, was a more urgent matter for discussion than Hollande’s longer-term plans for the fiscal pact.

But Von Rompuy was keen to persuade Hollande not to force a complete renegotiation of the fiscal pact, which could plunge the Euro zone into further political and economic turmoil, instead to content himself with adding a few sentences on growth, to the existing pact.

The pact only enters into force once twelve of the seventeen Eurozone countries have ratified it, and there are already complications:

Before any ratification in Dublin, Ireland is to hold a referendum on the pact on 31 May, and opinion polls at the moment suggest that it is by no means certain that the Irish will back it.

For ratification in Berlin, two thirds of each house of the German parliament must vote in favour, implying the agreement of the opposition Social Democrats, who are now wavering a little on strict austerity medicines.

But without the formal introduction of the fiscal pact, Germany will not allow the release of the next tranche of economic aid to Ireland, which has been depending on such funding since November 2010.
 

François Hollande’s plans to boost growth include some ideas which Nicolas Sarkozy has already tried to get past Berlin, without success.

He hopes to increase the capital in the European Investment Bank and wants structural fund reserves to be spent in deprived areas to stimulate spending within Europe.

He hopes the Financial transaction tax introduced by Nicolas Sarkozy will raise money and promote growth, but might have trouble persuading other eurozone countries to adopt such a tax.

And his plan for Eurobonds, whereby the debt of all Eurozone countries is pooled, has already been rejected by Berlin. Germany would be the principal guarantor of Eurobonds, and Merkel feels that such a rescue plan would relieve pressure on the Eurozone’s most heavily-indebted countries and remove the incentive to make structural reforms to their economies.

Sarkozy ultimately had to accept that the balance of power in Franco-German relations lay with Berlin.

But since those hard-fought negotiations in December, the climate around Europe has worsened and in Greece and Spain in particular, opposition to austerity measures is increasing, giving Hollande greater argument for his amendments.

Angela Merkel herself faces an important election in the state of North Rhine-Westphalia next Sunday, where the opposition SPD party is advocating more social spending on children, and the issue of public debt is dominating the agenda.

If her party does badly, it might suggest that even in Germany, there are limits to the appeal of trying to balance the books.

But Merkel is a formidable political operator.

Whatever happenes in the NRW vote on Sunday, when Merkel hosts François Hollande next week in Berlin she is unlikely to hint at allowing the slightest alteration to the hard-won fiscal pact.

She will not want to give Hollande a success, which he could flaunt ahead of France’s all-important legislative elections in June.

She could still be hoping that Hollande’s Socialist Party fail to win a majority in those elections, leaving their president fatally disabled, and unable to cause further trouble.

A key member of Hollande’s team yesterday made an interesting statement. Pierre Moscovici told journalists that “For François Hollande, the Franco-German relationship is a first relationship, important,” but that he had “always said, and has repeated again, his wish to see the European Institutions play their role.”

We’ll see. The reality is that Europe is run by the democratically elected government leaders and the money markets..