Merkel, Hollande pledge to find common ground on European growth

French President François Hollande and German Chancellor Angela Merkel held the first of many meetings yesterday, discussing proposals for augmenting austerity with stimulus measures.

New French President François Hollande and German Chancellor Angela Merkel acknowledged differences on Tuesday over how to boost growth in recession-plagued Europe, but pledged to forge a joint approach in time for a European Union summit next month.

The Socialist Mr. Hollande jetted to Berlin only hours after being sworn in to meet Ms. Merkel, a conservative, for the first time, arriving over an hour late after his plane was hit by lightning and he was forced to return briefly to Paris.

The meeting was being closely watched for signs the leaders of Europe's biggest economies will be able to move beyond a war of words over how to resolve the debt crisis that now threatens to tear apart the 13-year-old currency bloc.

Hollande sharply criticized Merkel during his election campaign for insisting on tough austerity to bring down suffocating debt levels across the euro zone. She in turn had backed Hollande's rival, conservative incumbent Nicolas Sarkozy.

Supported by others in southern Europe, Hollande has vowed to shift the focus to growth and reopen a tough new set of budget rules that Merkel and other EU leaders agreed to adopt earlier this year – a step considered taboo in Berlin.

"I said it during my election campaign and I say it again now as president that I want to renegotiate what has been agreed to include a growth dimension," Hollande told a joint news conference with Merkel at the Chancellery in the German capital.

Merkel's five-year double act with Mr. Sarkozy earned the duo the moniker "Merkozy" for their close cooperation during Europe's debt crisis. The new Franco-German couple – referred to by some as "Merkollande" – took care to play down their differences on Tuesday, hoping to send a signal of unity at a time when speculation is growing that Greece may have to exit the euro zone and return to the drachma.

"Growth has to feed through to the people. And that's why I'm happy that we'll discuss different ideas on how to achieve growth," Merkel said.

They said the goal was to present joint proposals at a European Union summit in late June.

GROWTH PACT

Instead of reopening Merkel's "fiscal compact," they are expected to complement it with a new "growth pact."

Berlin has already signaled it is open to several ideas favored by Hollande, including more flexible use of EU structural aid, a bigger role for the European Investment Bank, and the introduction of "project bonds" to foster investments in infrastructure like transportation and energy networks.

But most economists agree that these steps will make little difference to countries like Greece, which is in its fifth year of recession and has seen unemployment surge to 22 percent.

That means Germany is likely to come under pressure to take additional steps, like giving struggling euro countries more time to reduce their deficits, a step it has so far resisted for fear of spooking jittery financial markets.

Although the reserved Merkel learned over time to work with the impulsive Sarkozy, her advisers often complained about his erratic behaviour and some believe she will ultimately form a closer bond with the more outwardly cautious Hollande.

The two were born less than a month apart and grew up in religious households and both scorn the flashy styles of their more charismatic predecessors, Sarkozy and Gerhard Schroeder.

Hollande noted that French and German leaders of different political stripes had a long history of working well together to promote the common European project, referring to Mr. Schroeder and Jacques Chirac, as well as to Helmut Kohl and Francois Mitterrand, and Helmut Schmidt and Valery Giscard d'Estaing.

After the news conference, the two leaders dined on lamb schnitzel and asparagus on the eighth floor of the Chancellery, overlooking the Tiergarten park and the Reichstag parliament building. Aides said they had a broad conversation on topics ranging from economic and foreign policy to bilateral issues.

Hollande later flew back to Paris. He is due in Washington later in the week to meet US President Barack Obama ahead of G8 and NATO summits at Camp David and Chicago.

Hollande finds himself in the hot seat from day one. Earlier on Tuesday, Greece abandoned a nine-day hunt for a government and called a new election that could hand victory next month to leftists opposed to the terms of the country's EU/IMF bailout.

A growing number of policymakers in Europe have warned over the past week that if Greece does not stick to the budget cuts and structural reforms agreed with its international lenders, it may have no future in the currency bloc.

Both Merkel and Hollande said they wanted Athens to remain a part of the euro project and stood ready to explore ways to support the Greek economy so it could return to growth: "Like Mrs. Merkel, I want Greece to remain in the euro zone," Hollande said.