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Analysis: France looks for a mellower Merkel post-election

German Chancellor Angela Merkel attends the handover ceremony of the annual report of the National Regulatory Control Council (NKR) at the C
German Chancellor Angela Merkel attends the handover ceremony of the annual report of the National Regulatory Control Council (NKR) at the C

By Mark John

PARIS (Reuters) - With quiet satisfaction, France's Socialist government has watched Angela Merkel strike an ever softer stance on Europe in recent months as she prepares for Germany's election.

What's more, Paris believes the poll might just nudge the conservative chancellor yet further from the hardline fiscal austerity policies she has embodied for much of the euro zone's debt crisis.

With two months to go before the September 22 election, Francois Hollande's government rates Merkel's chances of securing a third term at "85, even 90 percent", a senior aide told Reuters. More strikingly, it is comfortable with that outcome.

Just a year ago, Merkel contemplated letting debt-stressed Greece be jettisoned from the euro currency zone, while the newly-elected Hollande pondered leading a revolt of southern states to counter a feared German hegemony over Europe.

Both stepped back from confrontation.

Hollande saw it was bad for French debt yields for France to be aligned with troubled states such as Greece or Italy; and Merkel feared her rising unpopularity outside Germany was a political liability, and was spooked by the huge potential cost to Berlin if a Greek exit led to a euro zone breakup.

In the 50th anniversary year of the World War Two foes' 1963 friendship pact, Berlin and Paris struck a "Realpolitik" truce.

France got more breathing space to get its public finances in shape but has dropped talk of euro debt mutualisation and other projects that are anathema to Berlin. Hot potatoes such as completing the EU's banking union must also wait till next year.

Some in Hollande's Socialist party continue to rail against Merkel's "self-centered intransigence" and to depict German policies as the main obstacle to reviving the European economy.

Yet Hollande - who during his 2012 presidential campaign was denied a reception in Berlin by Merkel - has refused to give explicit backing either to the incumbent or to Peer Steinbrueck, rival candidate of the German Social Democrats.

He did attend the Social Democrats' 150th anniversary bash in Leipzig, but then so did Merkel.

When Merkel hosted a Berlin summit this month to show she wants to tackle the scourge of youth unemployment in Europe, Hollande was happy to be at her side - despite concerns in his party that the whole thing was a German election stunt.

"She is doing this with two things in mind," a French diplomatic source acknowledged at the July 3 meeting, which critics derided as a "show summit" with little substance.

"First, to prepare the election - and no one can blame her for that. Second, there is the European angle: to show Germany cares about youth unemployment and is open to new ideas."

Wishful thinking? Much will depend on the exact vote count and weeks of coalition negotiations that will ensue in Berlin in the likely event that no party secures an outright majority.

"DIVINE SURPRISE"

Merkel is riding high in the polls with around 40 percent support - not enough for her Christian Democrats to rule alone. Her current liberal Free Democrat partners risk dipping below the five percent threshold to win any parliamentary seats.

In the quest to broaden her appeal past her conservative grass roots, Merkel's manifesto includes nods to policies such as a minimum wage, which Hollande's Socialists have long argued Germany should embrace to match similar provisions in France.

"It has been a bit of a divine surprise in Paris that, in mid-campaign, instead of turning into an even tougher cookie, Angela Merkel has become a sweeter proposition," noted Thomas Klau of the European Council on Foreign Relations.

If Merkel does not win an outright majority and the FDP are not available as partners, the next choice as coalition partner would likely be the Social Democrats (SPD), currently struggling at around 25 percent of the vote. She might also try for a deal with the ecologist Greens, but they look more incompatible with her Christian Democrats and especially with the Bavarian Christian Social Union.

Badly burnt by a 2005-2009 "grand coalition" with Merkel in which it hemorrhaged voters, the SPD would only enter a similar pact again if it won assurances from Merkel that it would have a clear say on policy and senior representation in government.

"A grand coalition would help change Germany's view of other countries. And abroad, Angela Merkel wouldn't be seen as the only winner," said a senior French source of the scenario.

CONVINCING VISION

Even in a grand coalition, Merkel is not seen backing down from core positions on Europe such as rejection of Eurobonds and reluctance to allow regulatory control of the German banking sector to slip too far out of national hands.

But there is hope in France that left-leaning allies would be able to squeeze a few significant concessions on Europe.

Paris has made no secret of its displeasure with Jose Manuel Barroso, the Portuguese conservative heading the European Commission. When his mandate ends in 2014 it would look to a grand coalition in Berlin to back a centre-left successor: in French eyes European Parliament President Martin Schulz, a German, would be the front-runner.

Hollande could also look to Berlin for backing to accelerate and expand an EU growth pact agreed at a June 2012 summit, a 120-billion-euro package of Keynesian stimulus measures which Paris complains is not being implemented quickly enough.

And Paris will need political cover from Berlin if it once again falls short on deficit-cutting promises to Brussels. Credit ratings agency Fitch's Friday move to downgrade France underlined persistent fears of debt overshoots.

All of this could make for a cozier Franco-German couple.

But some argue that, unless that couple goes on to really tackle Europeans' main concerns - unemployment being top of the list - it will not be enough to stop voters turning massively to Eurosceptic parties such as France's anti-immigrant National Front in European elections next year.

"I expect Francois Hollande and Angela Merkel to accelerate the drive towards European integration," said a senior diplomat in Paris. "They have to set out a convincing vision."

(Additional reporting by Emmanuel Jarry, Elizabeth Pineau and Paul Taylor; Editing by Paul Taylor)

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