PARIS — The day after Francois Hollande rode to power in France on a slogan of “change now,” the conversation in Europe had changed Monday. Austerity had become a dirty word. What replaces it, though, was anything but clear.
The newly powerful in France and Greece want to roll back the spending cuts and tax increases that have defined Europe’s response to its 3-year-old debt crisis. But campaign rhetoric is likely to prove more extreme than any real-world reversal of the budget tightening.
World financial markets took Europe’s latest round of political upheaval in stride, convulsing early and then recovering. The continent’s uncertain future — including the possibility of Greece leaving the euro — was causing anxiety but not panic about the threat to the global economy.
But there is hardly unity in Europe.
Sunday night, Socialist President-elect Hollande celebrated his victory over Nicolas Sarkozy by vowing, “Austerity can no longer be inevitable!” On Monday, German Chancellor Angela Merkel gently pushed back.
She rejected Hollande’s call to renegotiate a treaty signed last month on tougher action to control government deficits. “We in Germany, and I personally,” she said, “believe the fiscal pact is not up for negotiation.”
Still, she stressed the importance of French-German cooperation and her willingness to meet soon with Hollande.
Economists said that while the anti-austerity winds are bound to stir up short-term political instability, especially in Greece, they could eventually bring some financial calm.
“This is going to force some rethinking” all across Europe about how to manage the debt crisis, said Laura Gonzalez, a finance professor at Fordham University in New York City. “That is good for everybody.”
Greece remains the focus of Europe’s financial and political unease. Political parties that made gains by rejecting belt-tightening still have to assemble a majority coalition in Parliament before they can begin governing.
The biggest fear was that Greece’s new leadership would renege on commitments made to secure the country’s massive rescue loans — or even leave the euro. Merkel pressed Greek leaders Monday to stay the course.
“Of course, the most important thing is that the programs we agreed with Greece are continued,” she said.
Greece wasn’t the only problem. The 17 countries that use the euro — and nine other European countries — agreed in March to the fiscal compact that seeks to make countries balance their budgets. But bailout fears have intensified in recent months as Spain, Italy and other governments face rising borrowing costs on bond markets, a sign that investors are nervous about the size of their debts relative to their economic output.
Austerity was intended to address these jitters by reducing governments’ borrowing needs, but there has been a negative side effect: As economic output shrinks, the debt burden actually looks worse.
Hollande says he intends to renegotiate the fiscal treaty so it places an emphasis on growth and not just deficit reduction. He says governments should actually increase spending now, while economies are so weak.
France will see policy changes
PARIS — French President-elect Francois Hollande is likely to speed up the withdrawal of French troops from Afghanistan and won’t support U.S. efforts to deploy a missile-defense system in Europe, policy changes that would affect France’s position on key international security issues.
But the new French government, headed by a member of the Socialist Party for the first time in 17 years, is unlikely to stray far from the policies of defeated conservative President Nicolas Sarkozy in areas such as Iran’s nuclear program and the conflict in Syria.
Hollande has made no speech since his Sunday election that touches on foreign policy matters, but during his campaign he said France would participate in military intervention in Syria “if it is done in the framework of the U.N.”
Experts here saw a thaw in Iranian-French relations as unlikely under Hollande. Hollande also expressed reservations about missile defense during his campaign and has said he wants the 3,500 French forces in Afghanistan out by the end of this year.
Greek coalition elusive
ATHENS, Greece — A day after Greece’s two dominant parties collapsed at the polls, the leader of the center-right New Democracy party announced Monday that he had failed to form a governing coalition, pushing the mandate to the second party amid growing uncertainty about Greece’s political stability and staying power inside the eurozone.
“We did everything we could but it just wasn’t possible,” the leader, Antonis Samaras, said.
If the second and third parties also fail to form a coalition on their own or with the president’s assistance, the president appoints an interim government to bring the country to new elections in 30 days.
Denver Post wire services
