Merkel-Hollande Entente Moves Closer a Year After Merkozy Demise

German Chancellor Angela Merkel and French President Francois Hollande are looking for common ground on how to fix Europe’s economy as recession and soaring youth unemployment test the partnership at the euro’s core.

A year after French voters elected Hollande on a platform opposed to Germany’s push for lower debt and deficits, Merkel plans to meet the French president in Paris today in a bid to boost the region’s competitiveness, reduce joblessness and jolt Europe out of crisis mode. A joint news conference is scheduled for about 6 p.m. Paris time.

As heads of the two biggest euro economies, Merkel and Hollande are striving to set aside public needling and present joint ideas before European Union leaders meet in June to discuss coordinating economic policy in the 17-nation euro bloc. While Hollande has called for less austerity as Merkel touts labor-market overhauls to spark hiring, both are under pressure from their European counterparts to overcome differences.

“There has been irritation, but they are now trying to show they’re united,” Shada Islam, an analyst at the Friends of Europe policy-advisory group in Brussels, said by phone. “She beams, he smiles. They’ve realized that EU family obligations are such that the Franco-German axis has to function.”

Government officials in Paris and Berlin gave few hints about the topics for today’s talks, which come as Merkel campaigns for a third term in Germany’s Sept. 22 federal election. Her austerity-first policy and Germany’s economic boom during the debt crisis have helped keep her the country’s most popular politician.

‘It’s Serious’

“When you don’t hear much about an agenda in advance, you know it’s serious and they are talking about fundamentals,” Jan Techau, head of the Brussels center of the Carnegie Endowment, said in an interview. “This is a trust-building exercise” aimed at signaling that French-German sniping “can’t just go on” indefinitely.

Merkel, who backed Nicolas Sarkozy over Hollande in presidential elections last May, has repeatedly pressed the Socialist president for measures to spur France’s recession-hit economy since he defeated her austerity ally. France should “get competitiveness to a level that France can be successful, has jobs and reduces youth unemployment,” said Merkel, a Christian Democrat, in a German television interview on May 16.

That followed French Finance Minister Pierre Moscovici’s statement on May 5 that “we’re witnessing the end of the dogma of austerity” after “pleading for a growth policy for a year.” Two days before hosting Merkel, Hollande met Spanish Prime Minister Mariano Rajoy, who said the EU is now taking a more “intelligent, flexible approach” on deficit targets.

Youth Joblessness

Moscovici and German Finance Minister Wolfgang Schaeuble had a shared message at a conference in Paris on May 28: that youth unemployment in countries such as Spain is pulling Europe apart. Germany announced a program last month to boost financing for Spanish companies so they can hire, avoiding what Schaeuble said was “the long route through European institutions.”

While Hollande has rallied anti-austerity calls in southern Europe, his hand may be weakened by the recession-hit French economy and plummeting poll numbers as he tries to overhaul labor rules to spur growth.

France’s economy will shrink 0.1 percent this year and the euro economy will contract by 0.4 percent, while Germany grows 0.4 percent, according to an EU forecast on May 3. While France has failed to balance its budget in more than three decades, Germany is on track to bring its budget close to balance this year and economists expect a surplus in 2014.

Extra Time

Germany has shifted ground, condoning extra time for France and Spain to shrink their deficits. The European Commission gave the countries greater budget freedom yesterday, easing up on austerity amid the euro bloc’s nonstop economic contraction since the fourth quarter of 2011 and youth unemployment at 24 percent.

Even so, Hollande has pledged to reduce the French budget deficit and lauded Germany’s economic overhaul under Gerhard Schroeder, Merkel’s predecessor as chancellor, as the reason Germany “has an edge over other countries today.”

“In the end, France will have to change its position more than Germany,” Techau said. “The French really have to shift their economic policies at home and that’s going to be very politically inconvenient for Hollande and his Socialists.”

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