Merkel, Hollande sup on eve of monumental EU summit

The thunder of Zeus might as well have sounded around Europe on the eve of a dinner here between German Chancellor Angela Merkel and new French President François Hollande.

The two will sup in the Élysée Palace. Conversation will probably be a clash of ideas, not so much about the importance of saving Europe, but over how to do so. Yesterday European Union officials floated a 10-year plan to create common debt liability, which Ms. Merkel promptly blasted. Her vehement rejection – reportedly saying “I don’t see total debt liability as long as I live” – echoed around Europe.  

The last-minute dinner is a precursor to an EU summit tomorrow dubbed as monumental and historic. It comes as Europe’s economy and confidence sputter amid the worst economic crisis in decades and as talks and fear of the collapse or derailing of the common currency heighten.

It is the German leader’s first palace visit since her staunch French ally, Nicolas Sarkozy, was voted out of office in May, and it may be important simply as a way to develop familiarity and a working relationship with a core European leader at a time when the stakes in Europe are higher and the political body blows tougher.

In contrast to Mr. Sarkozy’s promotion of German ideas, in his first month in office Mr. Hollande has tried to rebalance both the Franco-German alliance and the German-dominated dynamics of Europe. At tonight's dinner Hollande is both one half of the Franco-German relationship at the heart of Europe and a tacit ally of European leaders, particularly in the south, who are seeking alternatives to German-prescribed unrelenting austerity at a time of recession.

Hollande is known to support the idea of a common debt approach, which would have EU members share the burden of individual member debt, as long as it has the right safeguards. That, along with his overall support for stimulus efforts, gives him the potential to be the main challenger to the German-led promotion of austerity and budget cutting as the sole answer to the crisis – a position increasingly under attack across Europe.

Merkel represents the powerhouse of Europe. Germany is the only country with a serious export economy and it views itself as having earned that status with hard work and sacrifice in the past decade. Its economic strength means that it has become the cash machine of ongoing bailouts, which the German public finds increasingly frustrating. June 22 polls by ZDF public TV showed that 79 percent of Germans do not support the idea of issuing euro bonds, which would act as a form of common debt relief.

 Merkel will advocate for a tighter fiscal integration of Europe that in the long term will cede national sovereignty over budgets to a EU central body – an idea facing strong public opposition in France.  

“I’m not sure what can be accomplished in this visit,” says Karim Emile Bitar of the Paris-based Institute for International and Strategic Relations about tonight’s dinner. “I think they will agree to disagree.”

The EU proposals floated yesterday at a meeting of the "big four" – Germany, France, Italy, and Spain – would put eurozone members on the path toward long-term structural reform or federal integration desired by Berlin – what Merkel has called “more Europe.” Those reforms would take years. But the EU plan also appears to open the door slightly to short-term stimulus for countries like Italy and Spain, which continue to show signs of immediate, unsustainable debt.  

Market leaders have said that short-term solutions are critical to curbing the debilitating borrowing costs for countries like Spain, which has been offered as much as 100 billion euros ($125 billion) by the EU to remain solvent. Spain has not yet specified how much money it will need. 

“The short-term question is whether Italy will be saved,” Hollande said, pointing to another acute problem. “If that doesn’t happen, I don’t know what any agreements will mean.”