PARIS - French President Francois Hollande may have set himself up for a fall this week, as Germany's Angela Merkel shows no sign of yielding to his push to provide more financing guarantees to stabilize the euro zone. The Socialist leader has raised the stakes for a June 28-29 European Union summit with his drive for a bank deposit guarantee scheme to protect euro zone savers and governments and for steps towards mutualizing debt and reviving growth. He is also backing a push by Italy to let the bloc's bailout fund buy troubled states' sovereign bonds on the secondary market without having to invoke emergency procedures, as a way to curb their borrowing costs and fight speculation. Public sparring between Hollande and Merkel, who will not consider such steps before euro states sign up to much deeper fiscal integration, suggests he is in for a blunt reminder that as long as it holds the cheque book Berlin calls the shots. In a pointed, if indirect, exchange at a news conference in Rome last Friday, Hollande said there must be more solidarity in Europe before countries hand over more sovereignty over their national budgets, while Merkel said she would not accept extra liabilities without control. As well as potentially damaging Hollande's image at home, a failure to get Merkel to bend may also spook financial markets which are looking for firm action to stem spiraling bank woes in Spain and underpin the euro. "There is a real conflict here and the future of Europe is at stake," said a French economist who asked not to be named because he informally advises the five-week-old government. "Hollande has exerted the maximum pressure on Merkel but if she remains intransigent and only agrees to the growth pact, I believe he will cave in and give her what she wants. He is not the type to get into an arm wrestle or serious clash over this." Hollande has invited Merkel to Paris for a working dinner on Wednesday, the eve of the two-day Brussels summit, for a last push to square their widely differing positions. "We will be working with our German partners on a compromise up until the very last minute," a French source said on Sunday. As things stand, the summit looks set to agree to Hollande's proposal for a growth package worth 130 billion euros ($162.96 billion) in joint bonds to fund infrastructure projects, a redirection of EU regional development funds and a capital increase to give the European Investment Bank more firepower.
