Pressure builds on France's Hollande over EU debt

Michael Mainville
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France's outgoing president Nicolas Sarkozy (R) and newly-elected president Francois Hollande

France's outgoing president Nicolas Sarkozy (R) and newly-elected president Francois Hollande (L) pay homage during a ceremony marking the 67th anniversary of the Allied victory over Nazi Germany in World War II, on May 8, 2012 at the Arc de Triomphe in Paris. Pressure is building on Hollande to stand by France's austerity vows

Pressure is building on president-elect Francois Hollande to stand by France's austerity vows, with Germany's Angela Merkel saying Europe is counting on them to resolve the bloc's debt crisis.

Hollande's first foreign trip as president will be to Berlin next week.

Merkel, in a letter to him that was released by her office, noted that he was assuming power in the European Union's second-largest economy "at a time full of challenges".

"It is up to us to take the necessary decisions for the European Union and the eurozone, to prepare our societies for the future and protect and advance prosperity in a sustainable way," she wrote.

But she also made clear she had no plans to renegotiate the fiscal pact setting tough budgetary rules for EU states that she spearheaded, despite Hollande's call to rework it to do more to foster growth.

On Tuesday, Japan joined those raising concerns about his plans, as Finance Minister Jun Azumi warned Hollande to keep France's fiscal discipline in place.

"We want (France) to do what has been decided so far," Azumi told a regular news conference, according to Dow Jones Newswires.

"I don't know whether Mr Hollande will immediately act on what he has said in heated debates during the election campaign," he said.

"But realistically, I think it is impossible (for European nations) to give up on fiscal-rebuilding efforts."

And a German member of the European Central Bank's board also warned France to honour its fiscal commitments.

"I expect France to implement the fiscal pact unchanged," Joerg Asmussen told the German daily Handelsblatt in an interview published Wednesday.

"In addition, I expect the new government to respect the promise to reduce the public deficit next year below the three-percent (of GDP) mark."

Hollande promised cheering supporters Sunday that he would reopen talks to ensure the EU fiscal pact focused on growth rather than simply imposing deficit-cutting austerity rules.

EU president Herman Van Rompuy announced Tuesday that the bloc's leaders would meet on May 23 for an informal dinner ahead of an EU summit on June 28 and 29 that is expected to focus on growth.

Hollande's transition chief Pierre Moscovici said the Socialist would not give up on his plan for "a European project that is more favourable to growth" and that France's partners would budge.

"We will find a compromise. And I am convinced that things are starting well," Moscovici told RTL radio.

The uncertainty generated by Hollande's election and the political turmoil in Greece, where election gains by hard-left and extreme-right parties stripped the ruling coalition of its majority, have riled the markets.

European stock markets slid and the euro fell on Tuesday, with sentiment dominated by uncertainty about the eurozone.

France's CAC 40 index was down more than three percent in late afternoon trading. The Dow closed off 76.44 points (0.59 percent) at 12,932.09, while the broader S&P 500 fell 5.86 (0.43 percent) to 1,363.72.

And in Tokyo, stocks were 1.74 percent lower on Wednesday afternoon.

But Hollande's victory has not yet sparked the financial chaos that Nicolas Sarkozy warned of during the campaign, with most of the concern focusing on Greece.

France raised 7.98 billion euros ($9.1 billion) in short-term debt Monday, with lower interest rates paid to investors for two of the three maturities offered.

Hollande, who beat Sarkozy Sunday, attended his first official function Tuesday at a World War II commemoration ceremony.

He joined the ousted president in laying a wreath at the Tomb of the Unknown Soldier beneath the Arc de Triomphe in Paris, as France marked the 67th anniversary of the end of World War II in Europe.

The ceremony was a sign of French unity, he said.

"There are issues that unite us all, beyond the person of Nicolas Sarkozy or of me," he said.

Hollande formally takes office on May 15 and shortly thereafter travels to Germany for his meeting with Merkel.

He will then travel to the United States for the G8 summit on May 18 and 19 and a NATO gathering on May 20 and 21.

Hollande's communications director Manuel Valls confirmed Monday that France would use the summit to announce a French troop withdrawal from Afghanistan between now and the end of the year.

Hollande's party must also set off on the campaign trail again in short order for France's June parliamentary elections, when he will hope to secure a ruling majority.