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Hollande marks uncertain new era in Franco-German ties

By Shen Xiaoquan: 0 Comment(s)Print E-mail China.org.cn, May 15, 2012

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Fresh hand on deck [By Jiao Haiyang/China.org.cn]

German media predicted that tensions between France and Germany would be aggravated if the French Socialist candidate François Hollande became president of France. With Hollande now in power, the relationship between France and Germany will undergo a period of adjustment, which will have an impact on Europe's future.

The end of "Merkozy"

Shortly after the European Economic Community was established, the then French President Charles de Gaulle and German Chancellor Dr. Konrad Adenauer signed the Treaty of Franco-German co-operation on January 22, 1963. The Treaty has played an important role in promoting European Integration.

The Franco-German axis has been the main engine powering European development. In recent years, this axis has played an important role in response to a number of major issues, including the international financial crisis, the European sovereign debt crisis and problems currently engulfing the euro. The strength of the partnership, along with its influence, has resulting in the European press dubbing Chancellor Merkel and former President Sarkozy "Merkozy".

President Hollande has his own unique view of the special relationship between France and Germany. He has reasserted the Franco-German axis view, but has stressed that the relationship should not be so exclusive as to ignore all others. From this we can see that, France in future, will not only seek to strengthen cooperation with Germany, but also look to respect the views of other EU member states. Such a scenario will undoubtedly work to dispel the concerns of smaller member states that are afraid of being marginalized in the EU decision-making process. However, it remains to be seen whether the Franco-German axis can continue to function properly and serve as the engine which drives Europe forward.

Reduce the deficit first, or stimulate growth?

Though it hasn't been long since Hollande was elected, he and Merkel are already divided, especially on the issue of how to view the "financial contract."

Merkel and Sarkozy were the main promoters of the "financial contract." After repeated consultations, the proposal was accepted by the vast majority of EU countries in January, and was signed by 25 EU member countries in March.

The European Economic and Monetary Union, stability, coordination and governance of the Convention, also known as the "financial contract," aims at strengthening the fiscal discipline of European member states. To this end, Sarkozy decided to strictly implement the contract by reducing the 2011 budget deficit of 5.2 percent of French GDP to 4.5 percent of GDP this year, and to 3 percent or less in 2013.

Hollande, though, does not hold with Sarkozy's view. He believes that the purpose of reducing the deficit is to promote growth rather than to solely reduce the deficit. Therefore, he advocates slowing down the pace of deficit reduction so that the government can stimulate economic growth through increased investment. He views economic growth as the solution for both the debt crisis and social problems.

Hollande told a German newspaper on April 18 that he would block the EU's pact for greater fiscal rigor if it failed to include measures for growth. He also blocked Sarkozy's attempt to enshrine a golden rule in the constitution and asked the EU to renegotiate the financial contract.

Merkel has flatly rejected Hollande's proposal. If they cannot agree on a way forward, the EU will face a deadlock.

The disputes over the "financial contract" reflect differences between the two countries on how to solve the economic crisis engulfing the eurozone. Discussing his plans, Hollande said: "I hope to improve the scale of the European Investment Bank (EIB) funds to finance major infrastructure projects within Europe, and through the issuance of 'project bonds' to finance the project." Hollande also hopes that the European Central Bank will loan directly to governments in order to fund government stimulus plans, a scheme which is in violation of EU law.

Hollande's idea is quite distinct from Merkel's. Merkel's government has consistently adhered to the idea of the European Central Bank's independence. Germany insists on seeking long-term economic growth through structural adjustment and reform. Obviously, the common goal is to overcome the debt crisis and stabilize the euro. However, differences exist in how these objectives should be reached. Put simply, the question is: Is the priority deficit reduction, or the stimulation of growth?

Hollande, though, is not the sole voice of dissatisfaction with Germany's hard-line stance. There have also been murmurs of discontent from other EU countries. These countries resent having to reduce their budget deficits in such a short period of time, and would prefer to receive an economic stimulus instead. It seems that other countries may now follow Hollande's, and France's, lead.

To this end, all sides are paying close attention to Hollande's first visit to Berlin. Whether he and Merkel can reach an agreement is not only vital to Franco-German relations; it is also crucial to the future of the EU.

The author is a researcher and senior editor at the International Affairs Research Center of Xinhua News Agency.

(This article was written in Chinese and translated by Li Huiru.)

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