Merkel Boosted by Growth Spurt Before Crisis Talks With Hollande

Chancellor Angela Merkel’s party seized on figures showing Europe’s biggest economy returned to growth, pushing back against French and domestic critics of Germany’s budget-cutting prescription during the debt crisis.

Michael Fuchs, the deputy parliamentary leader of Merkel’s Christian Democrats, contrasted the German economy’s expansion at five times the pace forecast with French stagnation over the same period. The “robust” developments in Germany’s economy show that “lasting economic growth on the basis of solid public finances is possible,” Fuchs said in an e-mailed statement.

Crisis policy will top the agenda when Merkel hosts French President Francois Hollande in Berlin today as Greece moves toward new elections that risk forcing it out of the euro. Hollande criticized the chancellor’s austerity focus during his campaign, calling for a shift in focus to growth. The two leaders will hold a press conference at 7:45 p.m. in Berlin.

The French and German data “play right into Merkel’s hands at the right time, allowing her to plug the virtues of her budget credo when it’s been assailed both abroad and internally,” Irwin Collier, a professor of political economy at Berlin Free University, said in an interview. “Her message will be, copy us.”

Hollande’s domestic challenges were highlighted by first- quarter figures released before his inauguration in Paris today showing France’s economy, the euro region’s second-biggest, was unchanged from the last three months of 2011, when it grew 0.1 percent. Germany’s economy unexpectedly expanded 0.5 percent in the first quarter after contracting 0.2 percent, helping the euro area avoid a second recession in three years.

Euro, Bunds

The euro fell 0.3 percent to $1.2783 at 3:19 p.m. in Berlin as Greek leaders said elections were probable to resolve the political impasse. The German 10-year bund yield was little changed at 1.45 percent after sliding yesterday to 1.434 percent, the lowest since Bloomberg began tracking the securities in 1989.

Reducing budget deficits is necessary “to ensure reliable financial policy” and “a stable and affordable refinancing of our debt over the long run,” Fuchs said. “All European states -- Germany and France included -- are called upon to raise their competitiveness through meaningful structural reforms. That way all profit.”

Merkel’s domestic Social Democratic opponents used the impending visit of the French president, a Socialist, to denounce her crisis policy and call for growth measures. SPD leaders proposed an “investment and growth pact” alongside the Merkel-inspired budget treaty going through ratification in European Union states and threatened to block the fiscal pact in Germany’s parliament unless Merkel agreed to their demands.

Merkel and former French President Nicolas Sarkozy’s anti- crisis policy “has failed the whole way,” SPD Chairman Sigmar Gabriel said. “The reason is the one-sided and incorrect crisis analysis that views the problem as one of pure over- indebtedness.”

Europe does not face a choice between growth and tackling state deficits, said Fuchs. “Rather we have to ensure growth and stable public finances in equal measure.”

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

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

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