Berlin stands by fiscal pact, but Schäuble hints at move on growth in Berlin

GERMAN REACTION:FRANCE MAY have a new president but Germany has the same chancellor. And Angela Merkel insisted yesterday that Sunday's election of François Hollande would trigger neither a renegotiation of the fiscal treaty nor swift agreement on complementary growth measures before Ireland's May 31st referendum.

Dr Merkel called Mr Hollande at 10pm on Sunday evening to pass on her congratulations and invite the president-elect to Berlin. By yesterday morning, however, it was back to politics as usual.

“The fiscal pact is not negotiable. It has been negotiated and has been signed by 25 countries,” said Dr Merkel. “We are in the middle of a debate to which France, of course, under its new president, will bring its own emphasis. But we are talking about two sides of the same coin – progress is only achievable via solid finances plus growth.”

German officials poured cold water on the idea that Mr Hollande’s promised post-election memo on growth measures would change anything in the Irish referendum.

“Individual European countries making proposals has happened in the past and has led to some fruitful summit talks, but decisive is what happens within the circle of 27,” said Dr Merkel’s spokesman Steffen Seibert. “We take it that Europe will want to agree [any measures] in the circle of 27 and we need a European Council for this.” The next summit is scheduled for June.

Berlin analysts expressed confidence that, as has been the case with previous leaders, Dr Merkel and Mr Hollande will find a way to keep the Paris-Berlin motor moving. “But unlike other Franco-German couples [the crisis means] they don’t have the luxury of waiting,” said Claire Demesmay of the German Council of Foreign Relations.

German opposition parties welcomed the end of the so-called “Merkozy” duo. “That was really no blessing for Europe,” said Claudia Roth of the Green Party.

Social Democratic Party (SPD) leader Sigmar Gabriel said Mr Hollande’s election “would not just change France but help to give Europe a new direction” with a plan for growth and jobs to accompany austerity.

On Greece, the chancellor conceded that the post-election situation was “not uncomplicated” but said the reform programme was agreed.

Behind the scenes, Dr Merkel’s officials conceded the election outcome was “extremely difficult” because of the success of Greek anti-reform parties.

“We’re not happy but what can we do?” asked one senior Berlin official. “They want to be fully bankrolled by the rest of Europe, but that’s not going to happen.”

Despite Berlin’s public insistence that Sunday’s election doesn’t change the basics of the fiscal treaty, there are early signs it is prepared to show a certain level of flexibility.

Finance minister Wolfgang Schäuble, a trusty weather vane of political thinking in Berlin, suggested yesterday that Germany needed to address imbalances it has helped cause in the EU balance sheet.

Germany’s economic strength is a result of structural reforms a decade ago and wage restraint in the intervening years. The knock-on effect, Berlin’s critics say, is weak domestic demand for imports and a distorting German trade surplus.

Mr Schäuble told Focus magazine: “Europe and the G20 are relying on us remaining an engine of growth. That’s fine if wages in Germany currently rise faster than in other EU countries. These wage increases also serve to reduce the imbalances within Europe.”

His apparent acknowledgement of criticism of Germany is significant as Berlin politicians rarely comment on pay talks, the latest round of which are under way.

German unions are seeking a 6 per cent rise while employers are offering an average of 3 per cent.