Hollande's new job starts with German austerity showdown

It’s Hollande versus Angela Merkel in a battle to decide on more belt-tightening or investment in growth.

The newly-elected French president, Francois Hollande, shakes hands with supporters as he arrives at his former campaign headquarters in Paris yesterday.
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MARSEILLE, FRANCE // Francois Hollande will make the toughest of starts to his French presidency today, as he attempts to settle glaring differences with Germany on tackling the sovereign debt crisis and preserve French-German authority in the increasingly beleaguered euro zone.

As the new champion of growth as an alternative to austerity, Mr Hollande will carry the hopes of the left in France and beyond when he flies to Germany.

Ahead of him lies an immediate test of his commitment to securing renegotiation of the euro zone treaty to introduce measures that do not rely solely on financial rigour.

The German chancellor, Angela Merkel, who openly supported Mr Hollande's centre-right rival, Nicolas Sarkozy, in the French presidential elections, has repeatedly declared that there can be no tampering with the agreement.

But financial analysts are warning that with Greece in a political mess, prompting more and more vocal speculation about a break with the euro, and storm clouds gathering over Spain, failure on the part of the zone's two biggest economies to find common ground would have calamitous consequences for the continent as a whole.

For example, Britain - though outside the single currency area - fears the fallout for trade if the euro collapses or member states sink deeper into recession.

One leading French economist and author, Christian Saint-Etienne, wrote in the daily Le Figaro newspaper at the weekend that in confronting crises of public debt and competitiveness, Mr Hollande must realise that "the least error could be fatal to the eurozone".

As European finance ministers met in Brussels yesterday, one senior French socialist, Henri Emmanuelli, who served in Francois Mitterrand's government as the budget secretary of state in the 1980s, said he was sure Mr Hollande and Mrs Merkel would seek compromise.

But with the French president's insistence on stimulus to growth at odds with the chancellor's demand for continued belt-tightening, he admitted this was not likely to be achieved overnight. Mr Emmanuelli also said Mr Hollande would be no pushover. "He must be firm and he will be," he said.

This bullishness reflects the socialists' confidence, inspired by the defeat of Mr Sarkozy on May 6. By contrast, Mrs Merkel's authority suffered a serious setback at the weekend when her Christian Democrats were heavily defeated in elections in the important North-Rhine Westphalia region, where polling is often seen as a barometer of German public opinion. In Germany as in France, the left is gaining ground as voters suffer the pain of austerity.

But Mr Hollande is quickly learning the harsh realities of office. Pundits have wasted no time in pointing out the difficulties in his way.

The French journalist, Eric Dupin, uses the title, La Victoire Empoisonée (the poisoned victory) for his new book to show the scale of the economic and social ills confronting the president. A similar phrase, translating as "poisoned chalice", was used when Mr Hollande's father, Georges, 89, once a far-right politician, spoke to the Nice-Matin newspaper after his son's election.

"The honeymoon will be very short if there is one at all," Denis Ferrand, the managing director of the Paris think tank COE-Rexecode, told the Reuters news agency, discussing fears that France could be hit by job cuts, delayed by the election.

"The decline in France's industrial competitiveness is the fundamental issue facing Hollande and it's particularly impressive in the auto sector," he said.

Before leaving for Berlin today, Mr Hollande is due to name his prime minister, who will be expected to lead the socialists into next month's legislative elections.

One local battle may pit the leaders of France's far left and far right - respectively, Marine Le Pen and Jean-Luc Mélenchon - against each other. With Mr Hollande's conventional socialists under pressure to stand aside to give Mr Mélenchon a better chance of winning, there are already echoes of claims the president would be a hostage to radical left wingers.

Later this week, Mr Hollande will hope to make his mark on the wider international stage when he joins the other leaders of the Group of Eight (G8) economic powers at Camp David, the Maryland country retreat of the US president, followed by a Nato meeting in Chicago.