France's Hollande plays euro poker with Merkel
PARIS (Reuters) - Determined to show voters he is not Angela Merkel's doormat and convinced he is well positioned to get his way, French President Francois Hollande is discarding diplomatic codes as he resets relations with a politically weakened German government.
The Socialist is taking his own stand on solutions to the euro zone crisis where for years Paris stood alongside Berlin. He is building alliances with leaders in Rome and Madrid who back his challenge to German-imposed austerity.
Just a month into his presidency, Hollande risked offending Germany's center-right chancellor by inviting left-wing German opposition leaders to the Elysee palace on Wednesday to discuss euro zone policy.
The informal meeting - with no photo opportunity or joint press conference - after the three Social Democratic (SPD) leaders met more publicly with Prime Minister Jean-Marc Ayrault, was a break with protocol. A new president would normally play host to the chancellor before there could be any question of meeting opposition politicians.
Hollande's move was partly a payback for Merkel's refusal to meet him when he was running against conservative predecessor Nicolas Sarkozy. But it was also intended to showcase his belief that Europe was wrong to let the "Merkozy" power duopoly dominate euro zone policy for so long.
He needs to convince voters he is standing up to Merkel if he is to persuade them to back moves towards closer European fiscal and political integration despite their deep attachment to national sovereignty.
He has chosen to focus his demands on shorter-term crisis solutions such as growth-promoting measures and a banking union with joint supervision and deposit guarantees to show that Europe is doing more to protect citizens.
"It's all part of the big poker game taking place between France and Germany at the moment," said political analyst Jacques Reland of the London-based Global Policy Institute.
"The momentum is with Hollande because everyone now agrees with his growth ideas. Economically, Merkel's hand is not as strong as it was, and politically she is in a much weaker position than Hollande."
France's first Socialist president in 17 years swept to power in May and is on track to win a clear-cut parliamentary majority on Sunday, adding the lower house to its control of the Senate, which would give the left more power than it has ever held in France.
Merkel on the other hand is dependent on coalition partners in parliament and has 16 months until the next general election, when she may be forced into a grand coalition with the Social Democrats. Even now she is dependent on Hollande's SPD allies to ratify an EU budget discipline pact agreed earlier this year.
After weeks of wrangling, the German parties agreed on Thursday to hold the vote on June 29, the day of a crucial EU summit, but the SPD is waiting to see what more concessions it can extract from Merkel before it commits to backing the treaty.
Hollande can take advantage of the SPD's weight to try to nudge Merkel more towards his position in the next two weeks.
But the chancellor, who holds the purse strings of Europe's strongest economy, drew thick red lines in parliament on Thursday against any form of mutualization of Europe's debts, or joint bank deposit guarantees, both backed by Hollande.
Hollande will be able to claim a victory if he gets Berlin's agreement at the June 28-29 EU summit on a growth pact to accompany the fiscal pact, which France has yet to ratify.
German officials shrug off Hollande's tactics, saying they expect Franco-German cooperation to resume as normal after the French parliamentary election. They also expect the Socialists to receive a "reality check" from financial markets concerned about Hollande's tax-and-spend program.
Merkel has now accepted the four key measures he has put forward, which were already on the EU's agenda before his election -- more capital for the European Investment Bank, a reallocation of EU regional aid funds, project bonds to fund cross-border infrastructure and a financial transaction tax.
Economists say they are likely to have a modest impact on growth in the medium-term. Merkel has rejected any stimulus program based on new public borrowing.
In return for Berlin's nod to these measures, Hollande needs to agree to an eventual fiscal union, that would give EU institutions greater control over national budgets.
The only way he can sell that to a public that voted "no" in a 2005 referendum on an EU constitution is to convince them that such integration would preserve their prosperity and lead to a better European social model for all.
He also needs to show that this is his initiative and that Paris is not being bullied into it by Merkel, as the electorate increasingly associates the EU with free-market economic policies unpopular in France and with austerity.
"The French are well aware that Merkozy was more "Merk" than "Ozy"," said Reland. "Merkel took the decisions and Sarkozy gave the press conferences. And public opinion has become very euroskeptical so Hollande has to play to the domestic gallery.
"He has to show Europe has changed, that it's not the Europe of 2005, which was seen as ultra-liberal, but a more social Europe based on cooperation rather than competition."
In another break with recent practice, Hollande will submit France's position on the issues to European Council President Herman Van Rompuy without agreeing a joint text with Berlin.
On Thursday, Hollande was meeting Italian Prime Minister Mario Monti in Rome to try align their positions ahead of a four-way meeting on June 22 with Merkel and Spanish Prime Minister Mariano Rajoy.
(Reporting by Catherine Bremer; Editing by Paul Taylor)
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