x Abu Dhabi, UAEWednesday 17 January 2018

Merkel and Hollande in euro debt showdown

France’s new president meets the German chancellor, making clear they have differences over the euro debt crisis, but said they would work to resolve them.

BERLIN // France’s new president Francois Hollande and the German chancellor Angela Merkel met last night to try to patch up their rift over austerity amid mounting worries that Greece will have to leave the euro zone.

Mrs Merkel welcomed the newly sworn-in Mr Hollande to Berlin more than an hour later than planned after his plane was struck by lightning shortly after take-off, forcing him to return to Paris and change planes.

At a news conference after their meeting, the two leaders were at pains to give a show of unity in the face of the escalating euro crisis, stressing their desire to keep the French-German alliance intact for the sake of Europe.

They made clear they had differences but said they would work to resolve them.

Mr Hollande has vowed to challenge Mrs Merkel’s strict focus on austerity in tackling the euro crisis. But the prospect of more turmoil in Greece, worries about Spain’s debt-laden banks and the resulting fallout on financial markets are likely to force the two leaders to solve their differences quickly, analysts said.

Mrs Merkel, who openly backed Nicolas Sarkozy in the French election, has ruled out renegotiating the fiscal pact on budget discipline and said on Monday she would resist any stimulus measures that involved new borrowing.

Earlier, European markets and the euro fell sharply as investors were alarmed by news that Greek parties had failed to agree a coalition government nine days after an inconclusive election, forcing the president, Karolos Papoulias, to call a further election in mid-June.

The Radical Left party, which has vowed to abandon the painful austerity package of cuts and reforms being demanded in return for a bailout, is expected to win the election. That would push Greece closer to bankruptcy and an exit from the euro unless lenders, led by Germany, back down.

The two leaders both said they want Greece to remain in the euro zone.

“Anything that can contribute to growth must be put on the table and discussed,” said Mr Hollande, adding that jointly issued bonds - so-called eurobonds - should also be examined.

“France and Germany have a will to work together for both our countries and for Europe,” the French president said.

“This meeting wasn’t there to sort out all the issues but first and foremost to get to know each other better.”

He also offered to help Greece.

“I do appreciate the suffering the Greek people are going through today. We will reach out to them through measures to support growth to allow them to remain in the euro zone.”

Mrs Merkel said: “We agreed that there is an obligation to work together. We have some common ground but also diverging views but that can also be fruitful.”

Aides on both sides have been highlighting the similarities between the reserved Mrs Merkel and the sober, modest Mr Hollande.

Both have simple tastes and shun the flashy lifestyle for which Mr Sarkozy and his wife, actress and former model Carla Bruni, were known.

When Mrs Merkel became chancellor in 2005, she stayed in the modest apartment in central Berlin where she still lives with her husband. She is occasionally seen shopping in a local supermarket and prides herself on her potato soup.

Mr Hollande, too, has complained about having to move into the Elysee Palace from his flat in Paris and said he wants to continue to do the family shopping as head of state.

Commentators say they could end up getting on well and that “Merkozy”, as the close alliance between Ms Merkel and Mr Sarkozy was dubbed, may soon be replaced by “Homer” - the Hollande-Merkel duo.

Their membership of opposing political parties may even strengthen the role of the French-German relationship in Europe because it would embrace a broader political spectrum, similar to the link between the former chancellor Helmut Kohl and the late socialist president Francois Mitterand, whose cooperation produced Europe’s monetary union.

“It is good for Merkel to have a Socialist in France. It makes for a cross-party coalition at the European level like with Kohl-Mitterrand,” Ms Merkel’s biographer, Gerd Langguth, told The National.

Mrs Merkel may look increasingly isolated with her strict austerity stance following the popular backlash against rigorous spending cuts across Europe, but she is unlikely to make major compromises, not least because most Germans support her position.

An opinion poll for Stern magazine published last week showed that 59 per cent of Germans are opposed to stimulating growth through new borrowing, and 61 per cent believe that Ms Merkel should stick to her position.

“Mrs Merkel will make minor compromises on austerity but she has limited room to be flexible,” said Mr Langguth. “Hollande too will be well aware that the German-French alliance has to work, for Europe’s sake. But I don’t expect him to move much before the French parliamentary elections in June.”

A senior Merkel ally, parliamentary whip Peter Altmaier, said he was confident the euro zone’s two most powerful economies would reach a joint position on growth in time for an EU summit next month.

“It is important that we study each other’s proposals. But I am sure that we will be able to agree a common Franco-German approach by the end of June at the latest,” Mr Altmaier said yesterday.

Mr Hollande’s appointment as prime minister yesterday of Germanophile Jean-Marc Ayrault, who has good contacts in Berlin and speaks German, was seen as a positive sign for cooperation in Berlin.

Guido Westerwelle, the German foreign minister, said he was “extremely worried” about the failure of Greece’s parties to form a government.

“It is a serious setback for the urgently needed confidence in Greece’s willingness to reform,” he said.

“We want Greece to remain part of the euro zone. The upcoming decisions in Athens aren’t just about the future government of Greece. It is about a commitment of the Greek people to Europe and the euro.”