NEW YORK (CNNMoney) — European Union officials are expected to begin debating ways to boost economic growth, after voters in France and Greece rejected austerity.
The focus on growth comes after Socialist party leader Francois Hollande defeated incumbent Nicolas Sarkozy in France’s presidential election Sunday. In Greece, voters punished the two main political parties, raising concerns that a weak coalition government will backtrack on the nation’s bailout program.
At the same time, many European economies have tumbled into recession as austerity measures — budget cuts and tax hikes — take a toll on growth.
Hollande has said he would renegotiate the “fiscal compact” that most EU leaders signed late last year to incorporate a “growth dimension.” The pact is designed to increase fiscal discipline and prevent a future crisis by ensuring that governments respect deficit rules and do not overspend.
Eurozone unemployment hits record 10.9%
But analysts say Hollande will probably back down on this issue to avoid a conflict with German Chancellor Angela Merkel, who has been the most vocal supporter of austerity.
Given the shifting political winds, the most likely outcome will be a new “growth compact” to complement the fiscal treaty, according to James Goundry, an analyst at IHS Global Insight.
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