Francois Hollande 'ready to stop' euro rescue

Francois Hollande has threatened to block the eurozone's new financial treaty unless Germany agrees to renegotiate its stringent austerity measures.

The new French president wants the treaty, seen as crucial to the survival of the single currency, to put more emphasis on growth.

Angela Merkel, the German chancellor, told France yesterday (Thursday) that there was no alternative to painful spending cuts to cut deficits.

But Benoit Hamon, spokesman for Hollande's Socialist Party, said that the "politics of austerity" was failing to tackle the continent's financial crisis.He said the French president was determined to win a "trial of strength" over the fiscal pact, which aims to impose tough budgetary discipline on 25 European Union countries who have signed up.

"Angela Merkel is defending her position but she cannot bypass the will of the French people," Hamon said. "If nothing moves, the treaty will not be submitted for ratification."

Merkel told France and Greece not to abandon debt cutting after weekend elections that saw both countries turn against austerity. "Growth through debt would throw us back to the beginning of the crisis," she said.

Hollande will meet her for the first time as president when he travels to Germany hours after his inauguration on Tuesday.

To a warm reception in Germany's parliament, Merkel said that "growth through structural reform is important and necessary. Growth through debt would throw us back to the beginning of the crisis." She is particularly alarmed that Hollande's demands for a greater focus on growth in the fiscal treaty designed to strengthen the euro will set a bad example to Greece, Italy and Spain.

German Social Democrats have also been encouraged to threaten to block Germany ratification of the fiscal pact unless Merkel backs down.

The first hopes of a Greek coalition government emerged last night (Thursday) after the leaders of two socialist parties said they would work together to keep the country in the euro.

After three days of stalemate, Evangelos Venizelos, leader of Pasok, said that he saw the first "good omen" in attempts to forge a government that would avert the prospect of a new election.

He spoke after meeting Fotis Kouvelis, leader of Democratic Left, who outlined a proposal for a unity government until 2014 that would strive to keep the heavily indebted country in the single currency and the European Union.

At the same time, it would attempt to negotiate a gradual "disengagement" from the harshest austerity measures of Greece's euros 130?billion (pounds 104 billion) bail-out. "Our views are very close," said Venizelos, who will meet other party leaders today to discuss the proposal.

Among them will be Antonis Samaras, the leader of New Democracy, whose support would be indispensable.

The centre-Right party holds 108 seats, including 50 for finishing first. With 41 seats for Pasok and 19 for Democratic Left, the three parties together would have more than the simple majority of 151 needed to govern.

But such a coalition would suffer a credibility problem with voters, 70% of whom supported parties that promised to tear up the bail-out. A new election next month remains a distinct possibility. Pasok and New Democracy were heavily punished by voters for joining forces in a six-month caretaker government to approve the terms demanded by international creditors, and both parties are associated with decades of mismanagement, cronyism and nepotism.

The door to a deal in Greece opened after Democratic Left criticised the Radical Left Coalition, or Syriza, for threats by its leader, Alexis Tsipras, to renege on Greece's debt commitments.

Democratic Left had hitherto said it would only join a coalition if it included Syriza, which pulled off a surprise second place in Sunday's election on a tough anti-bail-out message.

Data released by Marc polling yesterday showed Syriza had gained support since Sunday's vote, to become the most popular party with 23.8%, hastening the need for other parties to join forces.