What exactly does François Hollande want? It is a question that many in capitals across Europe have been asking since the Socialist was elected to replace Nicolas Sarkozy as French president earlier this month.
Hollande has spoken often of the need to adjust Europe's current focus away from austerity and toward economic growth, a sentiment shared by many, including US President Barack Obama, British Prime Minister David Cameron and even the Social Democrats in Germany.
But he has yet to provide details as to how exactly he envisions stimulating growth, most recently declining to do so at the G-8 summit in the US. On Wednesday evening, though, he will have his best chance yet to elaborate on his ideas. European Council President Herman Van Rompuy has invited the 27 European Union heads of state and government to an "informal dinner" in Brussels to discuss the elements of the so-called "growth pact," which is to be the focus of the next regular EU summit scheduled for June.
It will be Hollande's moment of truth. What exactly does his recipe for overcoming the euro crisis look like? How many billions of euros does he want to spend in order to stimulate the economies in those euro-zone countries currently struggling through deep crises? And will he, as he has hinted, challenge German Chancellor Angela Merkel on her ongoing opposition to bundling European debt in the form of euro bonds?
The new French president's supporters shouldn't get their hopes up given the significant opposition to Hollande's course that still remain. Merkel, to be sure, is seen as being increasingly isolated with her heavy emphasis on austerity at the expense of economic growth. But her influence remains significant -- and she also has plenty of support herself. On the eve of Wednesday's meeting, Spanish Prime Minister Mariano Rajoy made it clear that he stood behind the chancellor, saying that before one can speak of growth, expenditures must first be scaled back. Merkel herself couldn't have expressed it better.
Several Practical Hurdles
In his invitation, host Van Rompuy emphasized that the discussion would also focus on the long-term integration of the euro zone, and that it should be carried out with "no taboos." Such wording is likely a hint to Merkel that euro bonds too will be an acceptable subject of discussion should the gathered leaders choose to broach it. Hollande has indicated that he plans to do so, and counts on the support of Italian Prime Minister Mario Monti and European Commission President José Manuel Barroso.
Still, despite support in several European capitals for the idea of euro bonds, it seems unlikely that it would go anywhere. For one, there is no realistic scenario under which such a bundling of debt could be introduced. Even if Berlin were to abandon its opposition -- which appears out of the question, particularly given Finance Minister Wolfgang Schäuble's reiteration of his government's lack of enthusiasm during a Tuesday meeting with his new French counterpart Pierre Moscovici -- several practical hurdles would remain.
First among them, the introduction of euro bonds would require changes to European treaties. Article 125 of the Lisbon Treaty clearly indicates that one member state cannot be made liable for the debts of another. This clause, often referred to as the "no-bailout clause," would have to be deleted to clear the way for euro bonds. In addition, Brussels would have to be granted increased rights to have a say in the national budgets of EU member states. Such changes would have to be approved by all 27 EU countries -- which seems unlikely. Just in December, Great Britain and the Czech Republic declined to join the fiscal pact, an agreement that was far less radical.
Room for Disappointment
Hollande, for his part, is likely uninterested in making a foray into the euro-bond jungle at his very first high-level European Union meeting. As such, most expect him to focus on his growth message on Wednesday evening.
But here too, there is room for disappointment, particularly given the unlikelihood that EU leaders will present any genuinely new proposals for growth stimulus. Van Rompuy's invitation suggested that they will simply dust off previous Commission ideas, such as the following measures:
1. Growth stimulus: There is some 80 billion in unused funding in the European Union's Structural Funds, which provide money to regions in Europe to improve infrastructure and boost their economies. In January, EU leaders agreed to use this money to promote economic growth.
2. Investment stimulus: European Investment Bank capital is to be increased, with the German government already having given up its original resistance to the plan. Currently, a boost of 10 billion is under discussion, but in remains unclear how many of the countries involved would finance their portion of the increase.
3. Project bonds: The European Commission is to be granted the ability to issue project bonds for the first time -- essentially loans and guarantees designed to support private investors on infrastructure projects. Funding comes from the European Union budget and thus has little to do with the idea of euro bonds. Some 230 million has been committed to a pilot phase, which is to trigger up to 4.6 billion in investment by 2014. Berlin has already signalled its approval of the idea.
4. Structural reform: Merkel believes that labor market reforms coupled with liberalization and simplification of laws throughout the EU would provide the greatest economic stimulus. It is on this point that Hollande will have to justify his promise to sink the French retirement age from 62 to 60.
5. Battle against youth unemployment: Given the extremely high rates of youth unemployment in Europe, as high as 50 percent for people under 24 in some countries, the European Commission is seeking to redouble cross-border job placement efforts.
6. Financial transaction tax: Such a tax is as taboo for Great Britain as euro bonds are for Germany. Hollande will, like Sarkozy before him, experience significant resistance.
Yet even taken together, such measures are no more than a drop in the ocean. It could be that Hollande has a few more ideas up his sleeve, but even the new French president doesn't appear to be thinking in terms of the gigantic stimulus packages pushed through during the 2009 financial crisis. Following discussions in the US, Merkel said that leaders had reached a consensus that there would be no debt-financed stimulus programs.
Still, the chancellor would be wise not to simply criticize potentially controversial proposals and reinforce her reputation for being "Madame Non." Instead, she should present some ideas of her own, thus solidifying the yet fragile relationship with her new partner in Paris. Taking a step or two toward Hollande would also make it easier to secure the support of opposition Social Democrats at home when it comes to approving the fiscal pact. Merkel, after all, hopes to push the pact through the Bundestag before the summer break. And to do that, she will need a two-thirds majority in parliament.