By Daniel Aronssohn -
CHANCELLOR Angela Merkel faces a setback after voters punished governments in France and Greece that had toed the line for German-imposed budgetary belt-tightening, analysts said yesterday.
Germany had publicly pinned its hopes on the re-election as French president of Nicolas Sarkozy, who had forged a partnership with Merkel to help propel Europe out of its debt crisis and ward off further bailouts.
Instead, Germany's centre-right coalition must now carve out a new relationship with Socialist victor Francois Hollande who has called into question Merkel's austerity-driven solutions to Europe's woes. And in Greece, where the crisis began, the two leading parties in power which had agreed tough budget cuts to stave off bankruptcy saw their share of the vote collapse on Sunday, plunging the country into uncertainty.
German editorialists said the results had changed the landscape for Merkel.
"The Germans find themselves alone with their budgetary pact," Die Welt commented, referring to the German-inspired accord agreed by 25 of the EU's 27 members to combat the debt crisis via strict budgetary restrictions.
"It's a turning point, above all for Angela Merkel," said the Financial Times Deutschland, adding that Hollande's call to add a growth element to the fiscal pact "attacks the supremacy of the chancellor in Europe".
While Hollande's fervent calls during his presidential campaign to renegotiate the fiscal pact sparked anger in Berlin, they coincided with a turning tide in Europe that has seen voters baulk at biting fiscal consolidation.
Hollande's victory shows that "there is another solution to a policy based solely on austerity in Europe," the head of Germany's main opposition Social Democrats (SPD), Sigmar Gabriel, said yesterday.
Stefan Seidendorf, an analyst on European policy at the Ludwigsburg-based French-German Institute, said he believed Germany risked becoming isolated.
"Angela Merkel is already showing a bit of flexibility in order to not have to give way on essential questions," he said.
"She will accept negotiating a growth pact which does not change the fiscal pact in order to not give ground on the formation of eurobonds or on the status of the European Central Bank."
But she will have to find a way out of being trapped between German public opinion and European pressure, Seidendorf warned.
"Angela Merkel is going to try to act so as not to be cast as the Iron Lady who says 'no' and complicates everything," he said, adding she would have to explain at home why she had to give ground while also convincing home voters it was in Germany's own interests.
Merkel again ruled out yesterday a reworking of the fiscal pact which was signed in March but stressed she was also a firm believer in promoting growth as a path out of the debt crisis.
"At its core, the discussion is about not whether we need budget consolidation or growth — it is absolutely clear we need both," she told reporters. German public opinion generally supports Merkel's austerity drive, polls suggest.
Yesterday, Berlin insisted the deficit cuts and reforms imposed by the EU in exchange for bailing out Greece was the "best path".
But while Europe's biggest economy has weathered the crisis better than most, signs that it is losing some of its steam are emerging and wage disputes have multiplied recently.
Lueder Gerken, who heads the European Policy Centre at Freiburg, did not see the outcome of Sunday's votes as a defeat for Merkel but said that without Sarkozy the drive for structural reforms would probably be weakened.
He said Hollande, as a pragmatist, would not seek confrontation with Berlin, and pointed out that conservative ex-chancellor Helmut Kohl and former Socialist president Francois Mitterrand had worked well together.
