Merkel insists fiscal treaty Can’t be renegotiated

Germans face down challenge from new French leader

GERMANY and the EU have warned Francois Hollande, France's new socialist president, that he will not be permitted to renegotiate the eurozone austerity treaty, despite it being rejected by French voters.

Mr Hollande made renegotiation of the eurozone's ‘ fiskalpakt’ a central plank in the anti- austerity election campaign that swept him to power on Sunday night.

During his victory speech, he declared that France would end the “inevitability” of austerity, a direct challenge to Germany's drive to enshrine budgetary and debt controls in EU treaties.

Mr Hollande scarcely had a chance to savour his victory before jittery markets and a seemingly inflexible statement from Germany reminded him of obstacles to his proposed new European agenda for “hope” and “growth”.

German Chancellor Angela Merkel flatly ruled out any renegotiation of the treaty yesterday, signalling a major political confrontation between Germany and the new French leader.

“We in Germany are of the opinion, and so am I personally, that the fiscal pact is not negotiable,” she said.

Mr Hollande then hit back at the German chancellor and EU institutions for suggesting that elections could not alter the course of European politics, an outlook that, he claimed, would help the rise of extremism.

Populism

“The presidential election just sent a new signal: if there is not a restoration of confidence between peoples and Europe, we will see a rise of populism that will eventually hinder the European project, and one day break up the euro,” he said.

Mrs Merkel's only concession to Mr Hollande has been to say that Germany will discuss new policies to boost economic growth but only if he agrees to ratify the treaty which was signed by Mr Sarkozy.

A spokesman for the European Commission also said that previous agreements between France and EU were binding.

“We expect agreements to be ratified. That is the very basis of the EU,” he said.

Mr Hollande is to be sworn in as president on May 15, and in talks in Berlin late next week Mrs Merkel will remind the new leader that his support for the treaty is the condition for ECB support for struggling financial institutions.

A head- on collision between Ms Merkel and Mr Hollande on this point can probably be avoided. The French president-elect has already hinted that he might accept a compromise in which an untouched treaty would be balanced by an entirely new text on policies to kickstart growth.

Reforms

The true confrontation with Berlin may come on the contents of any new growth treaty. Ms Merkel's spokesman said yesterday that “growth- promotion” should mean labour market reforms on the German model, not “deficit spending”.

Amongst other things, Mr Hollande wants the ECB to issue new multi- billion euro loans – or euro bonds – to fund Keynesian- style infrastructure programmes, like rail, road and renewable energy projects. Several other European leaders favour this idea. Berlin is, so far, adamantly opposed.

The market jitters yesterday were also, perhaps, more of an amber warning for Mr Hollande than an outright red light. Market analysts said that a slide in the value of the euro and an initial fall on European stock markets were prompted more by the muddled outcome of the Greek election than fears of Mr Hollande’s presidency.

“For the next few days and weeks the direction of the stock market will hinge on how much efforts all sides, mainly Chancellor Merkel and President Hollande, will be putting into trying to work together,” said Markus Huber of ETX Capital.

The man who is likely to be finance minister in Mr Hollande’s government, Michel Sapin, said critics should not confuse Mr Hollande’s approach with profligate spending.

“Nobody expects that we simply arrive in power and hand out money,” Mr Sapin said. “That doesn't correspond to the reality of the situation.” ( © Daily Telegraph, London)