Hollande Aims at Merkel in Escalating Debt-Crisis Critique

Bloomberg: French Socialist Francois Hollande escalated his criticism of Europe’s debt-crisis response by aiming his fire directly at the duo of German Chancellor Angela Merkel and his campaign opponent, President Nicolas Sarkozy.

“Merkel has led Europe with Sarkozy and we can measure the results,” he said late yesterday on France’s TF1 television. “If I am elected president, there will be a change in the focus of Europe’s construction. Enough free market, limitless competition, enough austerity.”

The challenge to Sarkozy on crisis management leadership underscores Hollande’s confidence he can turn his poll lead into victory on May 6 and reflects increased opposition to Merkel’s austerity prescription to settle Europe’s financial woes.

As Europe’s two largest economies head toward potential conflict over quashing the crisis, Merkel and her ruling party stood firm on German-led remedies, including the debt-cutting fiscal pact signed last month by all 17 euro-area leaders. German officials also took aim at Hollande as they reiterated Merkel’s backing for Sarkozy.

“If Mr. Hollande were to say that he wants to increase government spending and save less, he’ll lose the confidence of the financial markets,” Peter Altmaier, the parliamentary whip of Merkel’s Christian Democrats, said in an interview in Berlin yesterday. “We will stick to our fundamental principles because there’s really no alternative.”

 

Resistance Growing

Germany, the largest country contributor to euro-area bailouts, is facing growing resistance from traditional allies to its anti-crisis prescriptions as a $1 trillion firewall and unlimited European Central Bank loans to the region’s lenders fail to stop the turmoil from threatening Spain and Italy.

ECB President Mario Draghi said it’s too early to talk about a plan for weaning the euro area off emergency measures. “Any exit strategy is premature given the current situation,” Draghi told lawmakers in Brussels today.

Hollande said two days ago that budget austerity across Europe is “bringing desperation to people” and that he’ll refocus the economy on growth if he wins.

Dutch Prime Minister Mark Rutte urged politicians yesterday to tackle the country’s economic woes after his coalition collapsed over proposed budget cuts, raising investor concern about his country’s ability to retain its AAA credit rating. A proposal on austerity measures will be sent to parliament today.

 

European ‘Credibility’

Merkel, who faces two German state elections next month and a national election in the fall of 2013, joined with Sarkozy to craft the euro area’s crisis response over the past year and backed him for re-election. She insisted on the need for austerity yesterday, saying Europe’s “credibility” depends on reducing deficits and debt.

“We’re not saying that saving solves all problems,” she told a conference in Berlin. Still, “you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”

The euro strengthened for a second day against the dollar and yen, rising 0.2 percent to $1.3218 at 10:54 a.m. Berlin time as stock gains spurred demand for higher-yielding assets. The risk premium for 10-year French bonds over German bunds of similar maturity declined for a second day after reaching the highest level since January on April 23.

Merkel may cede ground to austerity critics if the Social Democrats, the main German opposition party, increase their support in May’s state elections as polls suggest, said Thomas Costerg, an economist at Standard Chartered Bank in London.

 

‘Last Bastion’

If Hollande becomes French president and Merkel switches allies to govern with the Social Democrats after the German election in 2013, that “may further help to make views converge,” he said in an e-mail. “The last bastion of austerity could remain the Bundesbank.”

Hollande has said he’ll seek to add growth and investment measures to the fiscal treaty signed by Merkel, Sarkozy and 23 other EU leaders on March 2.

If he’s elected, his first visit will be to meet Merkel, so he can bring her “French people’s vote for another Europe,” Hollande said last night.

Merkel “is pretty resistant to pressure,” Altmaier said. France’s presidential vote and the Dutch government’s collapse don’t change the fact that “there’s no money in Europe, only deficits everywhere you look. Knowing the chancellor, she will await the outcome in France and then we’ll try to come to an understanding with the new government, whoever leads it.”

 

Spain, Greece

Europe’s front against austerity has expanded in recent weeks after Spain struggled to meet EU-imposed deficit targets, election campaigns in Greece faced anti-austerity rumblings and the revolt against extra spending cuts in the Netherlands, a traditional German ally, pushed Rutte’s coalition toward an early breakup. The Netherlands is one of four remaining AAA states in the euro area.

For all the turbulence, “nothing has happened in recent weeks that would raise questions” about the need for area countries to overhaul their economies and cut debt, German Deputy Finance Minister Hartmut Koschyk said in an interview.

No financial backstop is big enough to arrest the debt crisis and hold down borrowing costs on its own, he said. “It doesn’t matter,” he said yesterday. “It is no substitute for structural reforms” because “the readiness of markets to tolerate out-of-control public debt has vanished.”

reporters on this story: Helene Fouquet in Paris