President Francois Hollande will spend his first hours as French president huddled in meetings today with German Chancellor Angela Merkel, underscoring rising concern that Greece is headed out of the euro.
Franco-German summits have become such a feature of the European financial crisis that Hollande’s predecessor, Nicolas Sarkozy, and Merkel became known by the single name “Merkozy.”
“The euro break-up story is gathering steam again,” Marchel Alexandrovich, senior European economist at Jefferies International in London, said in a note yesterday. “The political uncertainty in Greece is higher than six months ago, with the Spanish and Italian macro backdrops clearly worse. But not to worry, it will all be all right because Germany and France are getting ready for another summit.”
Hollande was sworn in today at the Elysee Palace in Paris as the seventh president of the Fifth Republic and the 24th in French history. Before the ceremony, he held a brief private talk with predecessor Sarkozy during which France’s nuclear weapon codes were passed on.
“Among the constraints we face are massive debt, slow growth, high unemployment and diminished competitiveness,” Hollande said in his first speech as president. “But nothing is inevitable. I want to revive France and open a new way in Europe. A clear direction has been fixed and we’re mobilizing the strengths of France.”
Hollande said he will make proposals to counter Europe’s financial crisis that would cut government debt while providing economic stimulus.
Following his speech, Hollande drove down the Avenue des Champs-Elysee en route to the Arc de Triomphe, soaked by a downpour while waving to supporters from the open roof of his car. He deposited a bouquet to French soldiers lost in battle at the Arc de Triomphe.
The new president will name his prime minister later today and hand out other cabinet posts tomorrow. He is leaning toward Nantes mayor and Socialist parliamentary leader Jean-Marc Ayrault, Jean-Pierre Jouyet, head of France’s AMF financial-markets regulator and a confidant of Hollande, said today on RTL radio. Jouyet cited both press reports and “other” sources.
Ayrault “is also a German teacher, and has been described by Hollande as a ‘Social Democrat of German type,”’ Dominique Barbet, an economist at BNP Paribas, said in a note to clients. “He should thus be well regarded in Berlin.”
Before flying to Berlin, he’ll attend tributes to Jules Ferry, the creator of the French public-school system, and to Marie Curie, the Polish-born French scientist who became the first woman to win a Nobel Prize.
Upon arrival in the capital of France’s neighbor and biggest trading partner, Hollande will begin his effort to carry out a campaign promise to renegotiate the euro-area’s fiscal treaty. He says it puts too much emphasis on austerity and not enough on growth.
He has also called on the European Central Bank and the European Investment Bank to play more active roles in stimulating demand. Merkel has said the treaty can’t be touched, and has said she’s opposed to using government money to boost the economy.
While Merkel is head of Europe’s most powerful and healthiest economy, she’s also coming off a weekend defeat for her political party in elections for the regional legislature of North Rhine-Westphalia.
Hollande’s hand is weakened by France’s economic performance. Europe’s second-largest economy has stalled even as Germany powers ahead, driven by demand for its exports in emerging markets.
French gross domestic product recorded no growth in the first quarter, while German GDP grew 0.5 percent, the country’s respective statistics offices reported today.
“Everyone needs to save face,” Philippe d’Arvisenet, global economist at BNP Paribas, said in an interview. “It means there will be a statement that mentions the word ‘growth’ that also makes it clear that growth won’t happen through national stimulus plans. It may be about giving countries more time to cut their deficits, which may make the plans more credible.”
Pierre Moscovici, the head of Hollande’s transition team, wouldn’t say in a May 7 press conference if Hollande would insist on re-writing the treaty, or if he’d be satisfied with separate statements about growth measures.
‘Step by Step’
Hollande last week met with EU President Herman Van Rompuy and euro group head Jean-Claude Juncker, and made no statements after the meetings.
Merkel’s spokesman Steffen Seibert said May 11 that Merkel and Hollande won’t take any decisions today. The two leaders will hold a joint press conference after their dinner.
“I believe it’s better for the Greeks to stay in the euro area, but that also requires that we set out a path on which Greece gets back on its feet step by step,” Merkel said during a panel discussion with high-school students in Berlin yesterday. “Of course Greece can make it.”
Greece’s elections the same day Hollande was elected produced a political vacuum that puts in doubt the country’s ability to stick to the cuts required to receive bailout aid.
Bonds of at-risk countries have suffered since the Greek vote. Spain’s extra 10-year yield over German levels widened to a euro-era record close yesterday. Italian 10-year yields jumped by the most since January.
In the U.S., Hollande will have to justify his plans to withdraw French troops from Afghanistan a year earlier than Sarkozy agreed upon with North Atlantic Treaty Organization partners.
Hollande could find himself closer to the U.S. on economic matters. Obama and his advisers have often criticized the 17-country currency union for not doing enough to spur growth.
Treasury Secretary Timothy F. Geithner said April 25 the U.S. faces risks from the slow growth in Europe, even as he said the euro region had taken steps to calm the debt crisis.
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