Difficult balancing act

Even before Francois Hollande has been sworn in as French president on May 15 the world is listening to his every word to see if he will stick to his campaign promises. It would come as no surprise to political analysts if Hollande were to find excuses not to follow through on some of his bolder promises. For example, finding and employing 60,000 new teachers will not happen overnight. Reducing the pension age from 62 to 60 will be hugely expensive and is likely to be delayed. He will, however, move quickly to push tax increases on the rich, introduce a financial transaction tax, and legislation to separate retail and investment banking.

Hollande's victory, as well as election defeats for incumbent governments in Spain and Greece, reveals deep popular hostility and frustration in Europe with the austerity policy promoted by Germany. During the campaign Hollande emphasized that a top priority would be to renegotiate the fiscal compact that was signed by 25 of the 27 European Union members at the urging of Berlin. He said that Europe needed growth not austerity. He proposed that the mandate of the European Central Bank should include growth as well as tackling inflation and urged the bank to issue Eurobonds to fund infrastructure projects and boost employment.

But in the wake of his election victory Hollande has started to soften his campaign promise as German Chancellor Angela Merkel has declared her opposition to any formal renegotiation of the fiscal compact. In a telephone conversation after his election victory Merkel said she looked forward to a comprehensive relationship with the new French president. The two leaders now look likely to agree to place more emphasis on growth without diluting the newly-agreed rules to tackle the sovereign debt crisis. Hollande will also have to decide how to respond to Greek demands for a revision of their bailout terms.