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27 April 2012

Guardian: Hollande and Merkel clash looms over eurozone austerity


The German chancellor tells France that it cannot rewrite the fiscal pact, but the French presidential frontrunner says Berlin does not rule Europe.

Germany and France moved towards a bruising and potentially destabilising showdown over how to tackle the European debt crisis when Chancellor Angela Merkel abruptly dismissed one of François Hollande's central presidential campaign pledges.

"The fiscal pact has been negotiated, it has been signed by 25 government leaders, and has already been ratified by Portugal and Greece. Parliaments all over Europe are about to pass it. Ireland has a referendum on it at the end of May. It cannot be negotiated anew", Merkel said.

But with governments across Europe falling victim to a backlash against austerity, the policy debate in Europe is shifting from German insistence on austerity towards a greater emphasis on boosting growth and creating jobs. If he wins the French presidency on 6 May and also secures a parliamentary majority in June, Hollande and his team are committed not to ratifying the EU pact unless it is fine-tuned to include growth-boosting policies. The pact, a new rulebook for the eurozone, can come into force even if France does not ratify it, but this is seen as politically inconceivable.

While all the leaders, including Merkel, subscribe to the goal of generating growth, the dispute is over the means to that end. The Germans are strictly opposed to fiscal stimulus, relieving austerity, relaxing the rules and piling up any more debt. Merkel's growing band of opponents argue that the austerity is making a wretched situation even more desperate, plunging Europe into a deflationary spiral of debt entrapment, high unemployment, sickly banks and diminishing growth prospects.

But while the political arguments appear to be turning in Hollande's favour, he cannot substantively change the new regime. The fiscal pact has become the symbolic focus of the battle, but most of the new power and penalties contained in it became European law last December under a separate package of legislation that strengthens the European Commission as the enforcer of budgetary and fiscal rigour. The Hollande camp is not talking about repealing any of this legislation.

Full article



© The Guardian


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