Hollande sets France and Germany on collision course

Austerity strategy poised on a knife-edge as Socialists look set to storm the Elysée Palace

Angela Merkel's agenda of forcing through austerity programmes from Athens to Dublin faced its toughest test yet with the success of François Hollande in the first round of French presidential elections.

Shares across the eurozone fell sharply yesterday, followed by Wall Street, as investors digested the political news from Paris. Dismal economic news from the eurozone added to the uncertainty. Michael Hewson, an economist at CMC Markets, declared that victory for Mr Hollande would be "Europe's worst nightmare".

The euro also fell amid concerns that the consensus, formed largely byMs Merkel and Nicolas Sarkozy, that cutting budget deficits should be the main goal of European governments was on the brink of collapse. The fall was exacerbated by the demise of the Dutch government amid failure to agree on budget cuts.

Centre-right Ms Merkel attempted to put a brave face on Mr Sarkozy's waning powers, with her spokesman declaring: "The Chancellor continues to support President Sarkozy."

While austerity has pushed down German borrowing costs, other countries have seen themselves punished by the financial markets. French10-year debt is now trading at yields of more than 3 per cent, compared with Germany's 1.6 per cent and Britain's2.1 per cent.

Mr Hollande believes too much emphasis is being placed on budget cuts, and not enough on measures for growth. Yesterday he declared that if he became President, it would be "the end of imposing austerity everywhere, austerity that brought desperation to people throughout Europe".

Mr Hollande is also keen for the role of the European Central Bank to be extended beyond just demanding austerity to include a remit of spurring growth, which could involve more exposure for German taxpayers to potential funding of the eurozone's weaker nations.

Mr Hollande plans to balance the French budget a year later than Mr Sarkozy, by 2017. Some economists point out that even this delayed timetable would still be remarkable in a country which has not had a balanced budget since 1979.

As the main plank of Mr Hollande's fightback against the Merkel mantra of austerity, he wants to renegotiate the Treaty on Stability, Co-ordination and Governance.

Those in the Merkel camp point out parallels with the former Prime Minister Lionel Jospin, whose finance minister at the time, Dominique Strauss-Kahn, renegotiated a similar "stability pact" with more focus on unemployment and growth in 1997. However, with the absence of German backing, France was unable to secure funding from the markets and the proposals largely foundered.

The downbeat data on the eurozone came from the research company Markit, whose survey found that the eurozone economy fell at its fastest rate for five months.

Stock markets in France, Germany, Spain and the UK fell between 1.8 per cent and 3 per cent.

Can "Mollande" work together?

What happens when Merkozy becomes Mollande? This key question is now exercising the minds of financial markets and political pundits as President Nicholas Sarkozy's grip on the Élysée Palace is weakened – perhaps fatally – by the Socialist challenger François Hollande.

Mr Sarkozy's relationship with the German Chancellor, Angela Merkel, has been tense at times, but by and large the two have been a formidable tag-team, bullying and cajoling by turns their European colleagues and driving through the so-called "fiscal compact" last December.

This mandates strict caps on government spending and borrowing, with deficits capped at 0.5 per cent of GDP, and it is here where Mr Hollande could find an early chill in his relations with Germany.

Citigroup's Jurgen Michels said: "Hollande confirmed that he would block the ratification of the Fiscal Compact Treaty if the proposal did not contain measures for growth. His argument is that Europe is suffering from a 'deficit of economic dynamism'."

Grant Lewis, the head of research at Daiwa Capital Markets Europe, said that on the big question of how the two would work together in a crisis like a Spanish bailout, the simple answer was that they would have little choice. He said: "You have to pull out all the stops no matter who you're working with."

Russell Lynch

News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
News
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
PROMOTED VIDEO
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
News
news
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Life and Style
fashionThe supermodel on her career, motherhood and Cara Delevingne
News
i100
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
football
News
people
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

COO / Chief Operating Officer

£80 - 100k + Bonus: Guru Careers: A COO / Chief Operating Officer is needed to...

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments