BERLIN/PARIS (Reuters) – Germany dismissed a French-led call for euro zone nations to issue common bonds, a day before a European Union leaders’ summit which investors are looking to for new measures to counter the bloc’s debt crisis.

After a torrid week, stock markets rallied on optimism that the Wednesday summit would produce measures to foster growth and ward off the threat of contagion should Greece exit the euro.

The FTSEurofirst 300 index of top European shares was up 1.2 percent by 1230 GMT and Spanish and Italian borrowing costs fell, leaving scope for disappointment if the EU leaders underwhelm.

French President Francois Hollande will push a proposal for metalizing European debt at the informal summit, a scheme which many economists and policymakers say could be one of the most effective ways of restoring market confidence.

Hollande has also called for a focus on growth rather than austerity.

But there is no sign that Germany, the EU’s paymaster, is prepared to soften its opposition. It says more progress is needed first on coordinating fiscal policies, a stance in which it has the backing of the Netherlands, Finland and Austria among others.

“Tomorrow’s meeting will not deliver any landmark solution. The market is likely to be more prone to disappointment,” said Matteo Regesta, a strategist at BNP Paribas.

BERLIN (Reuters) – Angela Merkel returns from one of her most difficult foreign trips in recent memory on Tuesday to face more, severe tests of her long-standing command over the policy agenda in Germany and Europe.

The chancellor looked unusually isolated at a weekend G8 meeting in Camp David, where new French President Francois Hollande teamed up with host Barack Obama to push back against the bitter austerity medicine Merkel has prescribed for reeling euro zone members.

That conflict will continue to haunt her this week at an informal summit of EU leaders on Wednesday and at a meeting with German opposition leaders the following day, where she must defuse an escalating row that could delay approval of her cherished “fiscal compact” on budget discipline.

The man that Merkel was relying on to push these new fiscal rules through parliament, her chief whip Peter Altmaier, was abruptly shifted to the post of environment minister last week and will now have his hands full getting Merkel’s stalled energy transformation plan back on track.

All this comes against the backdrop of embarrassing conflicts within her centre-right coalition over childcare subsidies and data protection, that have left Merkel looking indecisive and her government inept before a federal election in September of next year.

Some leading German commentators are likening Merkel’s troubles to the last months of her predecessor Gerhard Schroeder’s reign, although no one expects her to gamble on early elections as he did.

Instead, people close to the chancellor suggest, she may be forced into compromises she would not have considered in the past, when her political standing seemed unassailable.

BERLIN (Reuters) – New French President Francois Hollande and German Chancellor Angela Merkel acknowledged differences on Tuesday over how to boost growth in recession-plagued Europe, but pledged to forge a joint approach in time for an EU summit next month.

The Socialist Hollande jetted to Berlin only hours after being sworn in to meet Merkel, a conservative, for the first time, arriving over an hour late after his plane was hit by lightning and he was forced to return briefly to Paris.

The meeting was being closely watched for signs the leaders of Europe’s biggest economies will be able to move beyond a war of words over how to resolve the debt crisis that now threatens to tear apart the 13-year-old currency bloc.

Hollande sharply criticized Merkel during his election campaign for insisting on tough austerity to bring down suffocating debt levels across the euro zone. She in turn had backed Hollande’s rival, conservative incumbent Nicolas Sarkozy.

Supported by others in southern Europe, Hollande has vowed to shift the focus to growth and reopen a tough new set of budget rules that Merkel and other EU leaders agreed to adopt earlier this year – a step considered taboo in Berlin.

“I said it during my election campaign and I say it again now as president that I want to renegotiate what has been agreed to include a growth dimension,” Hollande told a joint news conference with Merkel at the Chancellery in the German capital.

Merkel’s five-year double act with Sarkozy earned the duo the moniker “Merkozy” for their close cooperation during Europe’s debt crisis. The new Franco-German couple – referred to by some as “Merkollande” – took care to play down their differences on Tuesday, hoping to send a signal of unity at a time when speculation is growing that Greece may have to exit the euro zone and return to the drachma.

PARIS/BERLIN, May 15 (Reuters) – New French President Francois Hollande called for a European pact for growth to balance out German-driven austerity measures in his inaugural address on Tuesday, hours before taking his challenge to Chancellor Angela Merkel in Berlin.

Sworn in with all the pomp of the French Republic, Hollande won support from Germany’s opposition Social Democrats (SPD), who vowed to use their parliamentary blocking power to delay ratifying a European budget discipline treaty until Merkel accepts accompanying measures to boost growth and jobs.

“I will propose to our partners a pact that will tie the necessary reduction of our public debt to the indispensable stimulation of our economies,” the Socialist president said in his 10-minute maiden speech.

Hollande’s inauguration with military honours, capped by an open-topped motorcade ride up the Champs Elysees to the Arc de Triomphe in torrential rain, marks a potential turning point in the euro zone’s debt crisis amid a deepening political crisis in Greece, Europe’s most pressing debt headache.

Euro zone finance ministers dismissed talk of Greece leaving the 17-nation currency area as “propaganda and nonsense” on Monday. But with the country facing the likelihood of a repeat general election that leftist anti-bailout parties believe they can win, speculation about a possible Greek exit is rattling financial markets and won’t go away.

In Athens, Greek President Karolos Papoulias met party leaders on Tuesday to make a final plea for politicians to stand aside and let a government of technocrats steer the nation away from bankruptcy.

But the left-wing SYRIZA party, which surged to second place in last week’s general election on an anti-austerity platform, has already rejected the proposal and looks set to force a new poll next month, prolonging market uncertainty.

BERLIN/PARIS (Reuters) – Five years ago, Nicolas Sarkozy flew straight to Berlin after his inauguration and shocked his hosts with some blunt talk on planemaker Airbus, one of the most sensitive of Franco-German issues.

That first visit set the tone for the months that followed. German officials looked on in horror as the new French president reneged on budget pledges, announced plans for nuclear cooperation with Libya and claimed credit for influencing decisions by the European Central Bank.

On Tuesday, Francois Hollande will be sworn in as president after beating Sarkozy and make the same journey to Berlin. This time, German officials are confident of a calmer start to Europe’s most important working relationship.

The impulsive Sarkozy and the reserved Merkel eventually overcame their rough beginning, earning the moniker “Merkozy” for cooperating to combat first the global financial crisis, and then the euro zone debt disaster.

But they were always too different to be close. That is why Merkel and her conservative entourage, despite openly supporting Sarkozy’s re-election campaign, are looking forward to working with his Socialist successor.

“People forget that there was a lot that divided Merkel and Sarkozy,” a German official close to the chancellor said, requesting anonymity. “We expect there to be more common ground than differences with Hollande.”

An EU ambassador in Brussels put it more bluntly: “I don’t think it’s a secret that some leaders are not sorry to see Sarkozy go.”

BERLIN (Reuters) – Angela Merkel’s conservatives face defeat in a regional election on Sunday that could give the long-suffering German left vital momentum before next year’s federal vote and add fuel to a fiery debate on the chancellor’s European austerity drive.

North Rhine-Westphalia (NRW), a big industrial state in western Germany with an economy and population roughly the size of the Netherlands, has a history of influencing national politics.

A crushing defeat for former Chancellor Gerhard Schroeder’s centre-left Social Democrats (SPD) there seven years ago prompted him to call an early national election, which he lost to Merkel.

No one is expecting any shocks of this magnitude on Sunday, but the vote is bound to send tremors all the way to Berlin, and could make Merkel, Germany’s most popular politician, look politically vulnerable for the first time in a long while.

Polls suggest Hannelore Kraft, the popular SPD politician who has run a fragile minority government with the Greens for the past two years, will trounce her Christian Democrat (CDU) rival Norbert Roettgen – who happens to be Merkel’s environment minister – and strengthen her hold on power in the state.

A tram-worker’s daughter from the heart of the industrial Ruhr region, Kraft has won over voters by promising a go-slowly approach to cutting the state’s 180 billion euro debt pile, deftly dodging accusations of fiscal mismanagement by the CDU.

A decisive victory for the SPD on Sunday would therefore be seen by many as a double defeat for the chancellor. Germany’s most populous state would be rejecting not only her party but the fiscal discipline she has forced on heavily indebted euro zone countries like Greece.

BERLIN (Reuters) – Germany’s Social Democrats, emboldened by a victory for the left in France, attacked Chancellor Angela Merkel’s austerity drive in Europe on Wednesday, accusing her of boosting the far-right in Greece and raising the risk of it exiting the euro zone.

The opposition SPD has so far been reluctant to openly challenge Merkel’s insistence on fiscal discipline, which German voters broadly support, but events in France and Greece have opened up a flank they are keen to attack, especially ahead of an election this weekend in Germany’s most populous state.

SPD leaders hardened their opposition on Wednesday to Merkel’s plans to win quick parliamentary approval of tough new European budget rules, in what could develop into a major showdown between the chancellor and the party she ruled in coalition with between 2005 and 2009.

SPD chairman Sigmar Gabriel said in an interview to be published on Thursday that Merkel’s single-minded focus on balancing the books had increased the danger of chaos in Greece and of an eventual euro breakup.

“We are seeing the result of this policy in Greece where the radical right and enemies of Europe are entering parliament,” he told the weekly Die Zeit newspaper.

“Almost all economists have long shared (our) criticism of Merkel’s unimaginative imposition of austerity,” he added.

Greece on Wednesday moved closer to a second snap poll after a backlash against austerity bolstered extremist parties in Sunday’s election, robbing mainstream parties that support the terms of the country’s EU/IMF bailout of their parliamentary majority.