Will Merkozy have to break up, thanks to Hollande?
Angela Merkel initially refused to receive French presidential candidate François Hollande when he offered a meeting recently. But as his victory against Nicolas Sarkozy seems more likely, the German Chancellery has made its first contacts with the Socialist Party politician's camp. After all, Berlin and Paris must stick together.
For weeks, French President Nicolas Sarkozy fell hopelessly behind in polls against his Socialist Party opponent François Hollande, but in recent days he has narrowed the gap. Current polls show that Sarkozy might even manage to narrowly beat Hollande in the first round of voting on April 22. But in the run-off ballot on May 6, Hollande is still expected to win.
That means that France's future president could well be Hollande, a possibility for which the country's neighbors must begin making preparations. And that includes in Berlin, where the Chancellery has begun forging tentative ties with Hollande's camp.
German Chancellor Angela Merkel still hopes Sarkozy will ultimately win, having found in him a dependable ally, despite their personality differences. Particularly during the euro crisis, she and Sarkozy have stood side by side, most recently in advocating Merkel's pet project, the European fiscal pact, which obliges the 25 EU member states who have signed up to pursue greater budget discipline.
Meanwhile, Sarkozy's challenger Hollande has already announced that as president he would immediately try to renegotiate parts of the fiscal pact. From Merkel's perspective, that would be fatal, as it could destabilize the complete financial architecture of the new European Union.
But her hands are tied. The Chancellery seems to have resigned itself to accepting Hollande as the French leader, if necessary. The important Berlin-Paris alliance must continue to function.
And hence the first tentative ties are being forged between Hollande's and Merkel's camps. They are, of course, off the record and are only currently conducted through working-level channels. After all, anything else would seem a tad strange, after the chancellor took a clear stance in support of Sarkozy in the French election campaign. Merkel still has no plans to meet personally with Hollande, even though the Socialist candidate officially requested a meeting. SPIEGEL recently reported that Merkel and other conservative EU leaders had even jointly discussed boycotting Hollande during the campaign.
At the same time, officials in Berlin know very well that, despite all the differences, a rift with the Socialist candidate is not a good basis for a future working relationship. Besides, staff are already in place in the Chancellery who have close ties to France. Take, for example, Nikolaus Meyer-Landrut, who is responsible for European affairs in Merkel's office and who is one of the most important members of the chancellor's staff. Meyer-Landrut, who is married to a Frenchwoman, wrote his PhD on "France and German unity" and served as spokesman for former French President Valéry Giscard d'Estaing during his time as head of the EU's constitutional convention.
Members of Hollande's camp confirmed the contacts with Merkel's Chancellery. "There are no official connections," said Jean-Marc Ayrault, the leader of the Socialists in the French National Assembly and a close confidant of the presidential candidate. "There are only messages that are exchanged between advisers." But he considers the rapprochement to be an intelligent move. "If Hollande is elected by the people of France, then he will have a mandate. They know that in the Chancellery too, and it's certainly smarter to prepare for a change than to rule out such a possibility."
Ayrault takes a relaxed view of the fact that his boss will not be officially received in Germany, unlike in Poland or Italy, where Hollande was welcomed by President Bronislaw Komorowski and President Giorgio Napolitano respectively. "I think people in Berlin are more cautious than elsewhere," Ayrault said. "There are people close to Merkel who pursue a hard line. Others are much more pragmatic."
But Ayrault also made it clear that Berlin cannot expect an entirely easy ride, should Hollande become president. "We have a list of expectations and demands that we will put on the table," he said.
'Even a 1-Trillion Euro Firewall Wouldn't Be Enough'
Danish Finance Minister Margrethe Vestager gets a grilling by reporters at an EU finance ministers' meeting in Copenhagen on Friday.
European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small.
German Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, have been accused of crossing many of the "red lines" that they have set for themselves over the course of the euro crisis, making U-turn after U-turn as the crisis escalated. They officially stepped over the latest red line on Friday, when European Union finance ministers meeting in Copenhagen agreed to boost the scope of the euro zone's firewall to over €800 billion ($1 trillion). Berlin had long rejected such an expansion out of hand.
Austrian Finance Minister Maria Fekter announced on Friday that the permanent euro rescue fund, the European Stability Mechanism (ESM), would be expanded, by considering the around €200 billion in current bailouts as being separate from the €500 billion earmarked for the ESM -- originally, the €500 billion figure was to have included the €200 billion in existing aid. The ESM, which is due to come into operation in mid-2012, will also be boosted by including around €100 billion in bilateral aid that was given to Greece in 2010, as well as aid from other EU funds, bringing the firewall's total capacity to over €800 billion.
Fekter expressed her confidence that Friday's move would be enough to calm the financial markets. "The markets are already signaling relative calm," she said. "That shows that the markets can work with what we have set up here."
The Nuclear Option
On Thursday evening, in the run-up to Friday's summit, German Finance Minister Wolfgang Schäuble had said he was prepared to combine the existing bailouts with the new permanent mechanism. He said that the €800 billion capacity was "convincing" and "sufficient."
But not everyone shares his view that the sum is enough. On Thursday, French Finance Minister François Baroin called for the permanent euro bailout fund to be increased to €1 trillion, to shore up market confidence and prevent contagion in the euro crisis. "The firewall, it's a little like the nuclear option in military planning, it's there for dissuasion, not to be used," Baroin said in a radio interview. He was echoing calls made by the Organization for Economic Cooperation and Development (OECD) earlier in the week to boost the firewall to €1 trillion.
At the beginning of the week, SPIEGEL reported that Merkel and Schäuble had dropped their long-held resistance to allowing both the temporary European Financial Stability Facility (EFSF) and the ESM, which was supposed to replace it, to operate in parallel for a period, thereby expanding the scope of the funds available. Berlin had come under massive international pressure to increase the size of the firewall so that it was large enough to potentially bail out countries such as Spain and Italy.
'Shifting Sand Dunes'
Opposition parties in Germany were quick to make political capital out of the Merkel administration's many U-turns during a debate on the euro rescue fund and the European fiscal pact in the German parliament, the Bundestag, on Thursday. "Your red lines have, in reality, become shifting sand dunes," Frank-Walter Steinmeier, floor leader for the center-left Social Democratic Party (SPD), said to widespread applause.
During the Bundestag debate, the opposition also reiterated their position on linking their support for the European fiscal pact with stricter regulation of the financial markets and measures to encourage growth. "We need a tax on financial transactions," said Green Party floor leader Jürgen Tritten.
The fiscal pact, which will introduce tougher rules for budget offenders, is Merkel's pet project and was agreed upon by 25 EU member states at a summit in January. But the German government is reliant on opposition support to get the pact through the Bundestag -- because it affects the parliament's competency on budget matters, it needs to be approved by a two-thirds majority. A vote on the pact is expected in May.
However, it seems unlikely that the opposition will get their desired financial transaction tax. Plans for a Europe-wide tax, or even one within the euro zone, appear to be dead in the water for the moment, given stiff opposition from Britain and even some euro-zone countries. The SPD is also reported to be divided internally on the issue, with some party members arguing that opposing the fiscal pact -- which many in the SPD regard as a sensible idea -- can only damage their credibility. On Thursday, Steinmeier appeared to signal flexibility on the financial transaction tax, saying in the Bundestag that if a pan-European tax were to fail, there were other ways to implement the same goals.
On Friday, German commentators take a look at the German debate on the euro crisis.
The center-right Frankfurter Allgemeine Zeitung writes:
"It is to be doubted whether all members of the Bundestag actually understand the financial dimension and the technical details of the ESM. It doesn't help matters that the federal government has repeatedly shifted its position on this issue -- as the SPD's floor leader Frank-Walter Steinmeier rightly pointed out."
"But the entire euro rescue is a balancing act. On the one hand, fiscal discipline needs to be promoted. The pressure on the crisis-stricken euro-zone members to carry out reforms must not be undermined by the knowledge that, if they fail, they will be caught by a financial safety net. On the other hand, there is the need for solidarity. Those countries that are in a better position can 'help the others to help themselves,' as Schäuble put it."
"As always in the EU, these things lead to compromises in practice, which also explains why the government has readjusted its position on the ESM. The high ratings that Merkel enjoys in the polls may be related to the fact that the Germans seem to intuitively understand this delicate maneuver."
The conservative Die Welt writes:
"In the debate over the euro rescue, the SPD and Greens are increasing succumbing to the temptation to make political capital out of the government's mistakes. During the parliamentary debate on Thursday, the parties' respective floor leaders, Frank-Walter Steinmeier and Jürgen Trittin, gleefully listed the many red lines that Chancellor Angela Merkel has drawn, only to cross them a short time later."
"They have a point. In December, Merkel argued, entirely convincingly, that boosting the euro bailout fund was the wrong course to take. After all, she said, it would reduce the pressure on crisis-stricken states to push through reforms. There was also the question of whether the creditor countries, including Germany, were in danger of being overwhelmed by ever-higher guarantees."
"Now, the fund is indeed being expanded, and the coalition government's former concerns have suddenly disappeared. Instead, the administration is attempting to conceal its own U-turn with highly flawed arguments. Volker Kauder, leader of the conservatives' parliamentary group, argued in all seriousness that the move would decrease the risk to taxpayers because a higher firewall would actually calm the situation. This is, at best, naïve. More probably, it was a deliberate attempt to deceive people."
The center-left Süddeutsche Zeitung writes:
"If we ignore the ritualized rhetoric, the pretense of indignation and the petty jibes, then two things are clear following the Bundestag debate on the future of the currency union: The fiscal pact will happen -- and the financial transaction tax won't. Even if the SPD is insisting that, for them, tougher budget rules in the EU member states and a participation by the banks in the costs of the debt crisis are linked together, it is already clear that the SPD will not veto the fiscal pact in the parliamentary vote in May because of the transaction tax. That's a good thing."
"Of course it would be sensible to use a transaction tax to put limits on purely speculative financial deals, generating billions in revenue as a side effect. But as long as peripheral groups -- such as the British Conservatives, Luxembourg's banking lobby and Germany's FDP -- resist introducing the tax on the EU or euro-zone level, it is pointless to try to fight them. It would be smarter to try to achieve the same goals through other means."
The left-leaning Die Tageszeitung focuses on the calls to boost the ESM to €1 trillion:
"A trillion! That's how much money France is now demanding for the euro rescue fund. Until now, Chancellor Angela Merkel only wanted to come up with €700 billion. On the surface, it looks as if a Franco-German showdown is on the horizon. In fact, it is nothing more than a PR battle, where nothing is really new. It was already clear last summer that the existing EU rescue fund, the EFSF, was much too small to save Italy or Spain in an emergency. Even then, people were talking about €1 trillion as a target."
"One trillion euros is a lot of money, and yet even this huge sum will not be enough. But again, that's nothing new. For months, calculations have been doing the rounds that show that at least €1.5 trillion will be needed. The only interesting question left is how long it will take France and Germany to acknowledge this reality."