A lot depends on Hollande and how hard he will push


FRENCH PRESSURE:He campaigned for issues anathema to Berlin but he might get his way if things worsen, writes ARTHUR BEESLEYin Brussels

THE NAME is Hollande, François Hollande. The smiling French president strode into the summit chamber alongside Mario Monti, his Italian technocrat counterpart.

Declaring that all options must be on the table in the drive to overcome the debt debacle and revitalise the moribund European economy, he insisted he was not spoiling for a confrontation with German chancellor Angela Merkel.

The slayer of Sarkozy is a champion of growth, a self-declared ordinary man with an extraordinary mission – to bring the euro storms to heel. “We have no time to waste,” he said as he arrived more than an hour early for the summit.

Inaugurated last week, Hollande has already been to Berlin and Washington. He held court in Paris yesterday with Spanish premier Mariano Rajoy before the two of them took the train to Brussels. It is here that the new leader hopes to fundamentally change the political dynamic.

He campaigned to renegotiate the fiscal treaty and to give new powers to the European Central Bank to directly lend to governments. But each of these notions is anathema to Berlin.

Hollande referred on the hustings to “eurobonds” but his real interest seemed to be in project bonds for infrastructure, quite a different thing. Something changed at the G8 meeting in Camp David last weekend, when he came out gunning for fully-fledged eurobonds, jointly issued debt with a common euro zone guarantee.

Hollande said he was not alone. This is true – Monti and other leaders are on his side, the Taoiseach among them – but German resistance was inevitable. Still, the démarche signals that Hollande will not be swept aside lightly by the chancellor.

The new president seemed delighted as he entered the room, fellow leaders stepping forward to shake his hand. It is traditional for newly elected heads of state or government – there are many of them these days – to receive a round of applause.

As for the political backdrop, two things stand out. The first is that Hollande is still fighting legislative elections next month and cannot leave Brussels without something to show for the trip.

The second is the increasingly uncertain outlook for the looming election in Greece, which could see anti-bailout parties lead a government. If the deal is repudiated Greece will be on its way back to the drachma.

This fear factor here – and the weakness of Spain’s banks – have stirred renewed pressure for a bigger, better “firewall” against contagion. In spite of high anticipation in financial markets, there was no expectation of a breakthrough last night.

The big question, rather, centred on how strenuously Hollande would push his agenda. Would he accept a vague promise from the leaders to examine new crisis-fighting measures more deeply? Would he seek something more specific? Would the chancellor grant either? Behind her smiles, Dr Merkel adopted a characteristically defiant attitude. Eurobonds were not only ultra vires but impractical, she indicated.

But the sense remains that momentum could quickly gather behind eurobonds if the turmoil takes a turn for the worse. There would be constitutional hurdles to be overcome in Germany and EU treaties to be changed, but it could come to that yet. The same goes for possible changes to the mandate of the ESM and ECB.

History shows that Berlin tends to move when the threats to stability spike to unbearable levels. If disaster comes, it seems obvious that a decisive pre-emptive strike against contagion would necessitate something bolder than seen heretofore.

But it’s not all one-way traffic. Hollande’s manifesto embraced reversals of changes in pension entitlement and recruitment of thousands of teachers, all while balancing the books. The expectation was that he would be asked for a pledge to execute difficult structural reforms and stick to France’s obligations under the stability and growth pact.

As for the growth question, the best he might expect is a draft agreement on a clutch of reforms to boost infrastructure lending and make use of unspent structural funds. The final decision won’t come until the next summit, at the end of June. The same goes for any treaty change.