“ It is not possible to renegotiate the fiscal pact ”, said German Chancellor Angela Merkel’s spokesman Steffen Seibert, during a news conference held just hours after François Hollande’s election as French president on Sunday evening.
The comment, on Monday morning, was a short and sharp rebuff of the socialist president-elect’s campaign promise that he would re-negotiate the so-called European ‘fiscal compact’, the European Union’s inter-governmental budget discipline treaty, pushed through by Merkel and outgoing French president Nicolas Sarkozy, imposing harsh austerity measures upon 25 of the EU’s 27 member-states (the UK and the Czech republic having refused to sign up to it).
Hollande wants to water-down the pact’s austerity measures and to inject growth initiatives in the hope of kick-starting Europe’s near-moribund economies.
There is a lengthy list of subjects that are set to cause friction between Berlin and the new French administration, ranging from the conception of the role of the European Central Bank to Hollande’s questioning of the prevailing received ideas on strict public finances discipline. All through his campaign, Hollande – who will be formally sworn in as president on May 15th – has unambiguously opposed the austerity policies imposed upon Europe and championed by Merkel.
Enlargement : Illustration 1
The German Chancellor, meanwhile, stepped into the French election campaign by offering her unreserved support for the incumbent candidate Nicolas Sarkozy during a visit to Paris on February 6th. “We belong to the same political family,” she said then. “He supported me and it is natural that I support him in his campaign." Apparently convinced that Sarkozy would win, she refused to meet Hollande during the campaign.
However, as victory for the Socialist Party candidate became, during the final weeks before May 6th, an almost forgone conclusion, both sides began employing a dose of realpolitik. French weekly news magazine L’Express revealed that advisors for Hollande and Merkel met on several occasions in Berlin in the final weeks of the French election campaign. German daily Süddeutsche Zeitung reported Merkel’s staff as commenting that she will “evaluate Hollande according to what he does after the election, and not what he said before”. Meanwhile, in an interview published May 4th in another German daily, the Frankfurter Allgemeine, Hollande’s campaign manager Pierre Moscovici commented: “We don’t want to provoke a crisis [...] Franco-German friendship remains an essential, structural element of our policies”.
Hollande himself, in his victory speech on Sunday evening in Tulle, east-central France, spoke of a “common responsibility” shared by France and Germany. The French Socialist Party’s European affairs coordinator for the election campaign, Catherine Trautmann, said: “The Franco-German couple is not compulsory, it is not a given thing, it is a responsibility. We have many points of disagreement but we must move closer together. It will not be a German Directoire, like [it was] with ‘Merkozy’, but a dynamic agreement.”
'Nothing extraordinary in Hollande's propositions'
Behind closed doors, many in Brussels are predicting that agreement will be reached during the forthcoming two-day EU summit beginning June 28th in which a pact for economic growth will be established as a compliment to the fiscal compact. Indeed, European Council President Herman Van Rompuy has invited European leaders to an informal dinner on May 23rd to prepare the ground. French Socialist Party officials claim that such a growth pact will be based on Hollande’s ‘pact of responsibility, growth and solidarity’ which he promoted during visits to Brussels and Berlin at the end of last year.
“It is not unthinkable that we can reach a rapid agreement, as of June, on the growth pact,” commented French Socialist Party MP Jean-Louis Bianco, a member of Hollande’s inner political team, speaking after a visit in late April to Berlin, where he met with members of Merkel’s ruling coalition. Sylvie Goulard, a European MP for the centre-right MoDem party, who served as an advisor to former EC President Romano Prodi and who maintains close relations with current Italian Prime Minister Mario Monti, believes Hollande’s propositions will not prove controversial. “If you look closely at the [propositions] put forward by François Hollande, there is nothing extraordinary or impossible,” she commented. “Most of the points have already been under discussion in Brussels for several months.”
Enlargement : Illustration 2
In the memorandum outlining his position that François Hollande has said he will be soon sending to EU leaders, there are three propositions which could conceivably be met with agreement in Berlin.
The first is the introduction of a tax on financial transactions “for those countries” in agreement with the idea. The EC began working on such an idea in September 2011, when it published a proposed directive on the issue. Germany is in favour of the principle, but the opposition of the UK and the Netherlands would mean that the project could not become an EU-wide measure.
The second proposition is for reforming the allocation of EU Structural Funds, which are aimed at helping to finance economic activities in the continent’s poorest regions, and in particular to help reduce youth unemployment. The proposition, to give a greater portion of financing to the most needy, is unlikely to cause significant disagreement. Indeed, since the end of last year, member states worst hit by the economic crisis, such as Ireland and Portugal, have been given a greater allocation of aid from the Funds, combining them with national financing in an effort to stimulate growth.
Hollande also wants to increase the lending capacity of the European Investment Bank (EIB), the EU bank that offers long-term financing loans. This, again, appears likely to meet with approval. Over the past few days, several sources within Brussels report that the EC is currently examining how the EIB can increase its loan capacity, notably by giving it access to a part of the EU budget allowance.
'We don't want to block debate': Hollande aide
It is Hollande’s fourth proposition that is likely to cause tough discussions. This concerns the new French president’s plan for the issue of project bonds, with which the EU would borrow money for the financing of specific projects, such as the development of transport, energy and communications infrastructures. While EC President José Manuel Barroso has championed the idea for several years, Germany is in principle opposed to initiatives that will increase the European debt burden.
A small negotiating card for Hollande is the succession of Jean-Claude Juncker as president of the Eurogroup, the body that coordinates meetings of eurozone finance ministers. German finance minister Wolfgang Schaüble, regarded as something of a high priest of austerity policies, is a contender for the title.
But the project bonds aside, Hollande has been careful not to openly promote, for the time being at least, his support for the issue of eurobonds, a means of raising loans by the 17 eurozone countries but which Germany has flatly rejected. Neither has he indicated, for the moment, that his memorandum will include a proposal to reform the role of the European Central Bank (ECB), which again would place him at loggerheads with Berlin.
“These two questions are not tied to opening discussion,” commented Hollande advisor Jean-Louis Bianco, “because we don’t want to block debate. But we haven’t, all the same, removed them from the negotiations. We will defend these as well.”
But French Socialist party MP Christophe Carèsche, a member of Hollande’s European affairs team, admitted that what began as four propositions “have become five”. This refers to the idea that the ECB work in close partnership with the European Stability Mechanism ESM), a rescue funding structure for eurozone countries, by which the ESM might borrow directly from the ECB.
“The difficulty is that for us the electoral phase hasn’t finished,” commented Socialist Party MP Christophe Carèsche, who was responsible for relations with EU parliaments during Hollande’s campaign, referring to the crucial parliamentary elections due in France in June. Hollande faces a tight programme ahead: after he officially takes office on May 15th, his first foreign trip will be to meet Merkel in Germany, before attending successive G8 and NATO summits in the US between May 18th and 21st. After that, he will have about five weeks to reach agreement in Brussels, with the French parliamentary elections in the middle. Merkel, meanwhile, will most likely attempt close down the debate over European economic policies, limiting the scope of issues on the agenda for discussion.
But another major complication for Hollande is the possibility that the fiscal compact will already be history by the end of June. Ireland holds a referendum on its adherence to the pact on May 31st, and a ‘yes’ vote appears far from certain. But, more crucially, the political crisis in Greece threatens to deepen further with untold consequences on the eurozone and the possibility of a second round of legislative elections in June. The new French president could well arrive in Brussels for a summit whose agenda has been completely changed.
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English version: Graham Tearse