Renegotiating EU fiscal pact is not possible, says Germany

The German government yesterday ruled out reworking the European Union’s fiscal pact despite calls to do so by French President-elect François Hollande.

“It is not possible to renegotiate the fiscal pact,” government spokesman Steffen Seibert told a regular news conference.

He noted that 25 of the 27 EU member states had already signed the accord imposing strict budgetary discipline in March after major wrangling.

Mr Hollande has called for a shift in strategy towards more growth-oriented measures, including more public spending.

But Mr Seibert said Ms Merkel would not accept “deficit spending” to feed economic expansion and believed in “growth through structural reforms” such as reducing the cost of job creation as pursued by Germany over the last decade.

Yet he dismissed suggestions that the apparently conflicting policies would put Ms Merkel on a collision course with Germany’s closest ally, insisting she was ready for an open dialogue.

“We will see what proposals and ideas he has and go from there,” Mr Seibert said, referring to Mr Hollande.

He noted that Ms Merkel was also a firm believer in promoting growth as a path out of the debt crisis.

“Growth is not a new issue but rather the second pillar of our fiscal policy, and not just since yesterday,” he said.

Mr Seibert said he did not intend to draw red lines before Mr Hollande’s first visit to Berlin, expected imminently after he assumes power from President Nicolas Sarkozy, a close Merkel ally, on May 15.

“I would find it quite inappropriate for a government spokesman to already say what will work and what won’t,” he said, referring to Chancellor Merkel and Mr Hollande’s first meeting.

Meanwhile, world stocks fell and the euro wavered yesterday on renewed uncertainties in the eurozone after voters in Greece and France turned against German-led austerity.

The eurozone bond market showed signs of some tension initially but overall was little changed by mid-day.

Adding to the bearish atmosphere was weak jobs data from the United States at the end of last week, which had fuelled concerns about recovery in the US economy and pushed Wall Street shares down sharply.

The Paris stock exchange’s CAC 40 index opened down 1.52 per cent, amid concerns that European Union voters are hardening their opposition to deficit-cutting austerity programmes but later recovered to a 0.34 per cent fall.

Stocks in Athens plunged 7.9 per cent after Greece’s mainstream parties fell short of a governing majority, putting hard won agreements to save the country’s economy and membership of the eurozone back into question.

In Frankfurt the DAX 30 slid 0.96 per cent while Madrid’s IBEX 35 index lost 0.37 per cent. Milan however gained 0.57 per cent. London’s exchange was closed for a holiday.

In Asia, stocks led the trend with Tokyo diving 2.78 per cent and Hong Kong down 2.61 per cent. The euro fell to $1.2954, the lowest level since late January, but then rallied to $1.3036 at 1000 GMT, but still below $1.3082 in New York late on Friday.

Ratings agency Standard and Poor’s, which had stripped France of its top triple-A rating in January, said Mr Hollande’s victory would have no immediate impact on its rating or outlook.

“We will analyse the policy choices of France’s President-elect and the new government, taking into account the outcome of the parliamentary elections in June,” the agency said.

Some observers said the markets had already factored in Hollande’s victory, but others warned that the French result combined with renewed turmoil in Greece could renew pressure on eurozone debt.