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Posted by on May 6, 2012 in Breaking News, Economy, International, Politics | 4 comments

Merkel sleepless over Hollande

Germany’s Angela Merkel will sleep less easy tonight because the French people have confirmed their opposition to her austerity programs for all Europeans except Germans by electing Francois Hollande as their new President.

Tom Janssen, The Netherlands

The Merkel-Hollande clash will occur soon since she is the first foreign leader he will meet after his swearing in by May 15. He is also likely to clash with the Obama administration at a G8 summit in the US on May 18-19 and NATO Summit in Chicago on May 20-21. The next domestic political battle in France will be the Parliamentary elections to be held over two rounds on June 10 and June 17.

Socialist Hollande won the Presidency after a hard battle with Nicholas Sarkozy, who was so close to Merkel that journalists lampooned the duo as “Merkozy”. Holland can offer no such velvet hand to Merkel because he was elected on a platform of renegotiating a Europe-wide economic management plan that German officials say is not negotiable in any strand.

He was also elected on a platform of protectionism in foreign trade and early withdrawal of French troops from Afghanistan regardless of President Barack Obama’s intentions. His platform includes less deference to the NATO alliance, which, to US delight, Sarkozy supported whole-heartedly after decades of French coolness. These electoral commitments are sure to draw fire from the White House but Hollande has bound himself so tightly that he cannot water them down any time soon. That would be read as betrayal, especially as the French gave him a clear victory with an estimated 51.8 percent of the vote.

In recent years, Merkel has emerged as the new Iron Lady of Europe because she has succeeding in placing German interests above all others after the 2008 financial collapse in the US and the euro debt crisis in Europe. Both shocks occurred because of imprudent lending by banks, followed by their attempts to disguise greedy recklessness with financial instruments so murky that even experts could not decipher them. Some of the banks were vital to the national and international financial systems and could not be allowed to fail. So they received massive tax payer bailouts combined with ultra-cheap credits from the Federal Reserve and the European Central Bank.

Big German banks were particularly badly hit by their careless over-lending to European governments and to governments of provinces in Europe. The political risks to Merkel of bank collapses in Germany were so great that she fought fiercely to make indebted governments, including Greece, Ireland, Spain, Italy and Portugal, apply ruthless austerity plans. To be fair, she also tried to force most banks to take haircuts but German banks got off lightly.

Sarkozy fought Merkel at first but soon caved in exchange for less German pressure for an austerity plan in France. But he managed to make Merkel bend enough to recognize that the euro must be defended to avoid a collapse in credibility that could cause a run on some of the bigger banks.

Hollande understands the economic imperatives but has risen to power on a promise of more social justice and less austerity. He has pledged to add economic growth plans to the austerity plans to prevent shrinkage in French growth. Minutes after his victory he was being criticized for having mislead voters into believing that austerity plans and economic growth plans are not contradictory.

Even before he arrived at the Bastille in Paris to deliver his victory speech, all parties announced the start of their campaigns for the June Parliamentary elections. The far right National Front of Marine le Pen, which brought Sarkozy down by splitting the right, says it wants to convert future elections into a contest between the left, led by Hollande’s Socialists and the right, led by le Pen.

This is a traditional conservative’s nightmare because the electoral space held by Gaullism and its successors, including Sarkozy’s UMP, will be usurped by the far right. Much depends on what Hollande does in Berlin and the US later this month. Any sign of weakness under pressure from the Merkel and Obama will make Hollande look still more like Flanby, the soft jelly pudding used to describe him during the Presidential campaign. He cannot afford that before the Parliamentary elections.