Hollande win may improve Franco-German cooperation

PARIS (Reuters) - French President Francois Hollande's first-round parliamentary election victory has put him on course for a solid majority which could make it easier for him to cut deals with Germany to tackle the euro zone crisis.

If projections based on Sunday's vote are borne out in the June 17 runoff, the left would not only control the presidency and the parliament for the first time in 20 years, but also be free of any need to depend on the more eurosceptic hard left.

That would give Hollande the political space to start meeting Germany's demand for long-term European fiscal union. In return, France wants a commitment to focus now on growth after the harsh austerity measures required by Berlin stalled Europe's economy, sending shock waves around the world.

Hollande's office has played down suggestions that he might concede ground to German Chancellor Angela Merkel on fiscal sovereignty - an idea so unpopular in France it would likely lose his party votes in the second round of the election.

But France Inter radio said he would write to his European colleagues this week ahead of a June 28-29 summit offering to back Merkel's push for fiscal union if she agreed to a growth pact. He would also call for mutualised euro bonds that would ease borrowing costs for indebted euro nations.

Hollande's office would not confirm the report and people close to the president were sceptical.

"I don't think a victory in the parliamentary election would allow Francois Hollande to take a strong federalist position. That's not going to resolve today's problems," said economist Elie Cohen, an occasional advisor to Hollande.

He said that Paris and Berlin still needed to resolve their differences between Germany's focus on integration and France's more immediate concern about helping recession-hit countries.

"There is a short-term/long-term conflict between France and Germany that cannot be easily resolved," he said.

A strong parliamentary majority would nonetheless give Hollande a more flexible negotiating position. Any dependence on hard leftists would raise the risk of them demanding a referendum on greater fiscal union.

And when it last controlled parliament and the presidency, the Socialist Party was generally more enthusiastic about European integration, seeing it as means of cushioning France's economy against financial markets, than the conservative opposition.

SPENDING FREEZE POSSIBLE

Sunday's vote left Hollande's Socialist Party bloc likely to secure the 289 seats needed for an outright majority in the 577-seat National Assembly, and almost certain to do so with its Greens Party allies on board, polling institutes said.

Runoffs will be held next Sunday among the leading parties in constituencies where no one scored 50 percent.

"The realisation that the crisis is serious and that the government needs elbow room to get the country back on track is playing in favour of the government winning an absolute majority," said Stephane Rozes at the CAP political consultancy.

Hollande needs a clear-cut majority in order to pass budget adjustments next month, including possible spending freezes. He also wants to raise taxes on the rich.

While Hollande has promised not to impose Greek-style austerity cuts on France, many economists see him with little choice but to freeze some spending plans if a public finance audit due in late June confirms the country will struggle to meet a deficit goal of 3 percent of GDP next year.

To try and avoid that, economists close to the government believe Hollande will push for deficit targets to be adjusted across Europe to reflect cyclical economic swings, giving breathing space to countries in recession or with flat growth.

Ahead of the run-off, the Socialists were careful not to sound victorious, wary of losing voter interest.

"We need a strong majority to focus on jobs, growth, and justice so the country can be put right," said Socialist Party head Martine Aubry. "The situation is dire and we've got to mobilise."

Hollande, who won the presidency in May, will meet Italian Prime Minister Mario Monti at a meeting in Rome on Thursday. The pair will then join German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy at a G20 summit in Mexico on June 18-19 - right after the parliamentary second round and a Greek election.

(Additional reporting by Emmanuel Jarry, John Irish and Leigh Thomas; Editing by Myra MacDonald)