Marchons, Marchons!


(AP Photo/Francois Mori)

French president-elect Francois Hollande reacts to supporters with his companion Valerie Trierweiler while celebrating his election victory in Bastille Square in Paris, France, Sunday, May 6, 2012. France handed the presidency Sunday to leftist Hollande, a champion of government stimulus programs who says the state should protect the downtrodden - a victory that could deal a death blow to the drive for austerity that has been the hallmark of Europe in recent years.

In the end, it was closer than expected. In an election that could change the direction of European economic policy, François Hollande became the first socialist to win the French presidency in 24 years yesterday. Hollande took 51.7 percent of the vote in Sunday’s runoff election against incumbent Nicolas Sarkozy, who was sent packing after a single five-year term in the Élysée Palace with 48.3 percent of the vote.

Speaking from the Bastille last night, Hollande gave a clear sense of how he sees his victory: It signaled, he said, a “fresh start for Europe”— an indication that austerity is not be the continent’s destiny. The new French president has set off tremors in Berlin by arguing for stimulus spending to revive Europe’s ailing economy and calling for eurobonds to finance large infrastructure projects.  Hollande has also pledged to veto the German-inspired fiscal compact, which would bind its 25 signatories to stringent budgetary rules, unless it is complemented by measures to promote growth and employment.

All this will doubtless be on the table when Hollande meets Angela Merkel after being sworn in on May 15 or 16. Merkel worked closely with Sarkozy in tackling (or failing to) the European debt crisis and openly supported him against his socialist challenger. As leader of Europe’s economic powerhouse and its reluctant financial rescuer, she has proved a stubborn player. Her government’s commitment to austerity and structural reform as the only medicine for the eurozone’s ills has been adamantine—it will be hard for Hollande to find ways to crack her. On the other hand, he has invested too heavily in his credentials as an anti-austerity champion (on a pan-European level) to yield easily; he is mindful, among other things, of past instances in which French political candidates promised a change of course only to quickly bow to Berlin once elected. Parliamentary elections on June 10 and 17, in which Hollande hopes the socialists will earn an absolute majority, will also contribute to a robust negotiating stance.

Despite all this, a number of factors suggest the Franco-German relationship will be less stormy. First of all, the German chancellor is in a state of unprecedented isolation. She has lost Sarkozy a few weeks after the resignation of Mark Rutte, the prime minister of a Dutch government that was among the fiercest advocates of the need for unswerving budgetary discipline (he, too, was felled by lack of support for austerity). Spain’s conservative government, which came to power last November on a German-style platform of spending cuts and structural reform, is finding it increasingly difficult to borrow on the international markets and is on the brink of a social collapse, with unemployment near 25 percent. And Greece’s early elections yesterday delivered a stunning blow to the parties that backed the new bailout and the latest round of austerity measures that it entailed. Even within Germany, Merkel cannot ratify the fiscal compact without the backing of Germany’s Social Democratic Party, which, like Hollande, is demanding that it be supplemented by growth measures.

It is significant to note that in recent weeks, high priests of the German dogma of expansionary contraction (the widely disproved view that austerity leads to investor confidence and thus to growth) like ECB head Mario Draghi and the European Union commissioner for Monetary and Financial Affairs Olli Rehn have made noises in favor of a greater emphasis on growth. Even Merkel herself spoke of the need to boost economic activity in Europe, though she clarified that she meant only the need to increase funding for the European Investment Bank, something unlikely to make much of a dent in the current recessionary trend.

Hollande, for his part, is very much a child of the staunchly pro-European French Socialist Party. As such, he will be keen to find a modus vivendi with Merkel, knowing that without Franco-German co-operation, the European locomotive grinds to a halt, or—in today’s dire straits—may even go off the rails. In such an eventuality, France will find itself the leader of the struggling European South, something that is anathema to the self-image of the French.

In addition, some of Hollande’s more ambitious spending plans for the troubled French economy may be curtailed because of market pressure. The markets may also force him to take a greater interest in ridding the French labor market of various rigidities that dampen the country’s competitiveness, thus pushing him towards a path of greater convergence with Germany.

In his first week as president, aside from meeting Merkel and forming a government, Hollande, who has never served as minister and has precious little foreign policy experience, will also attend his first G8 meeting and his first NATO summit, both in the U.S. In the latter, in Chicago, he is expected to announce the withdrawal of French troops from Afghanistan by the end of 2012, a year earlier than Sarkozy’s plans envisaged. Barack Obama, who has already invited Hollande to the White House, will likely not be thrilled by this. But if the new French president can be a catalyst in pushing Europe away from its asphyxiating austerity regime and towards a vigorous recovery, Obama will be more than compensated for, given that the weak European economy is one the main threats to his re-election in November.

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