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Merkel Rejects Stimulus in Challenge to Hollande’s Growth Plans

German Chancellor Angela Merkel rejected government stimulus as the way to spur economic growth in Europe, setting up a clash with French President-elect Francois Hollande before he’s even taken office.

In her first response to Hollande’s victory in yesterday’s French election, Merkel rejected a return to the “huge” stimulus programs following the financial crisis in favor of business-friendly economic changes. She and Hollande will talk “very openly” about the form of growth to pursue, a discussion now taking place across Europe and “to which the new French president will bring his own accents.”

“This discussion is not whether we should pursue consolidation or growth, it’s completely clear that we need both,” Merkel told reporters in Berlin today. “Rather, I think the core of the discussion is whether we again need debt- financed economic programs, or whether we need growth elements that are sustainable and oriented toward the economic strength of certain countries.”

Merkel, who backed incumbent Nicolas Sarkozy, has invited the French president-elect to Berlin for an inaugural visit expected “very soon” after his inauguration on May 15. Hollande won election yesterday after he campaigned to reopen the European Union’s fiscal pact and focus on efforts to spur growth, clashing with Merkel’s insistence on budget austerity.

The chancellor, who heads Europe’s biggest economy, reiterated her opposition to opening up the fiscal treaty to renegotiation, saying that the pact “is not up for debate.”

‘Simply Can’t’

‘If we start to think we can renegotiate all this, then Greece would come along and say they want to renegotiate the troika package, then probably the other program countries would follow suit,” Merkel said. “You simply can’t do this.”

She added that “it is of utmost importance” that the international rescue programs agreed on with Greece “continue to be implemented” even after a “not uncomplicated” election result that saw unprecedented support for anti-bailout parties and no clear government emerging. “The process is a difficult one, but despite that it should go on,” she said.

Hollande celebrated his victory late yesterday in Tulle, France, pledging that he will push for less austerity and more growth as “Europe is watching.”

“Austerity isn’t inevitable,” he said. “My mission now is to give European construction a growth dimension.”

Merkel said that a telephone call she had with Hollande yesterday to congratulate him on his victory was their first conversation.

‘The First Time’

“As far as I can remember, that was the first time,” Merkel said. “Maybe we met decades ago, I don’t know. That was our first telephone discussion. As I said, it was a very good talk and he will be received in Germany with open arms and we’ll work together.”

European leaders have long been working on steps to bolster economic growth and the theme will be discussed again at an EU summit in June as part of an “employment package,” she said.

“The question is what kind of growth you mean,” Merkel’s chief spokesman, Steffen Seibert, told reporters earlier, when asked about Hollande’s stated aims. “We have to create the conditions for companies to be productive and innovative so they can give people jobs.”

“We have to get rid of the restraints holding them back,” Seibert said. “We have to scale back bureaucracy. It’s about all of that, and the fact that only a country that gets serious about reducing debt is a country that gains the confidence of people and business.”

Merkel and Hollande agreed in their phone call “that we plan to cooperate well and intensively,” she said. “German- French cooperation is essential for Europe. And since we all want Europe to succeed, this cooperation will start very quickly.”

To contact the reporters on this story: Patrick Donahue at pdonahue1@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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