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German Chancellor and Christian Democratic Union party leader Angela Merkel reacts before a party board meeting in Berlin, May 7, 2012. (Fabrizio Bensch/Reuters/Fabrizio Bensch/Reuters)
German Chancellor and Christian Democratic Union party leader Angela Merkel reacts before a party board meeting in Berlin, May 7, 2012. (Fabrizio Bensch/Reuters/Fabrizio Bensch/Reuters)

Can Hollande, Merkel find middle ground? Add to ...

The left-wing leader wins an upset election on promises of generosity, fairness and co-operation only to step off the victory podium into a financial brick wall. One of those three principles will have to suffer.

That is François Hollande, who defeated conservative Nicolas Sarkozy to become French president Sunday night with 51.7 per cent of the vote in the midst of a continent-wide debt crisis that is hitting France especially hard. Within hours of his victory speech, the euro had fallen to a three-month low and he stepped into a firestorm of economic challenges and crucial international decisions – with his inauguration still a week away.

His two chief promises – to renegotiate the two-month-old euro bailout pact to allow for more government spending and economic growth, and to co-operate with fellow European leaders – came into almost immediate collision when German Chancellor Angela Merkel dismissed the first in a few curt words Monday: “That’s just not on.”

President-elect Hollande now faces stark choices. He can stick to his principles and watch Europe’s recovery collapse. Or he can live with Ms. Merkel’s rules and suffer the fate of the continent’s other austerity-backing leaders, whose political and fiscal credibility is fast vanishing.

Or he can follow the path of other left-wing neophytes who have discovered the art of compromise. That was the story of Gerhard Schroeder in Germany, Jose Luis Rodriguez Zapatero in Spain, Luiz Inacio Lula da Silva in Brazil – and even Bob Rae in Ontario. They all managed mid-crisis government debt and spending better than their conservative predecessors, usually without entirely abandoning their progressive principles. In most cases, it was not a matter of choice.

There were signs Monday that some European officials and French voters expect Mr. Hollande to follow the path of consensus-seeking. Ms. Merkel’s fellow Christian Democrat, Ruprecht Polenz, chairman of the Bundestag’s foreign affairs committee, said he feels Mr. Hollande is a leader Ms. Merkel “can work with more easily from the outset than she did with Sarkozy.” Officials from her Christian Democratic Union have said that Ms. Merkel is much more open to policies of spending and growth than her rhetoric suggests.

But political circumstances in Germany and France could force the two leaders into a confrontation that neither of them desires.

Ms. Merkel’s party faces elections next weekend in the important state of North-Rhine-Westphalia, considered key to the sustainability of her leadership. German voters are deeply opposed to any policies that could result in spending on the troubled Mediterranean countries, notably Greece and Spain – even if that spending helped rescue the economies of those states, which are key consumers of German exports. So while many European leaders seem to be converging on a consensus around pro-growth and inflation-tolerant policies, Ms. Merkel is not in a position to join them, even symbolically.

At the same time, Mr. Hollande is stepping from his election victory into the equally tense and crucial contest for the French legislature. That vote, whose first round takes place June 10, will be a tense contest to maintain the narrow Socialist-coalition majority in France’s lower house, whose support is vital if Mr. Hollande is to implement any of his key promises.

To secure that majority, Mr. Hollande may have to avoid sounding too conciliatory toward Ms. Merkel’s debt-minimizing position. After all, he does not want to be associated with the “Merkozy” relationship between Mr. Sarkozy and Ms. Merkel: many French voters believe that relationship forced France to accept overly rigid debt limits in order to satisfy German demands and avoid a further French debt downgrade.

As a result, neither the French nor the German leaders can be seen compromising with one another – certainly not until mid-summer. Investors seem unwilling to wait that long. The markets have been responding fearfully to the French vote, and any sign of a serious schism could send Spanish and French bonds plummeting, causing a potentially fatal run on the euro.

That very fragility, on the other hand, could force Mr. Hollande into a compromise. While bond-rating agencies said Monday that they did not consider his election itself a cause for a French debt downgrade or warning, France holds levels of debt that have already caused one humiliating downgrade. Even a pro-growth policy would not have much leeway for spending.

He will have to think fast. Within days, he will have key confrontations with world leaders in which he will be forced to spell out an agenda that sounds satisfactory to his fellow leaders and to French voters.

After his inauguration on May 15, he will face bilateral talks with the United States after receiving an invitation Monday from President Barack Obama, followed by a crucial meeting of G8 leaders at Camp David on May 18 and 19, then a NATO summit in Chicago on May 20 and 21. In other words, a political narrative that has taken months for other left-wing leaders could play out in a matter of days for Mr. Hollande.

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