06/05/2012 01:30 pm ET Updated Aug 05, 2012

The Waiting Game

The first half of June will be hot, nervous and slow. This is neither a weather forecast nor a traffic report but a commentary on the timeline facing the EU and specifically German Chancellor Merkel to seek a resolution to the immediate Greek crisis.

On June 10th the French legislative elections take place and on June 17th Greece again goes to the polls to decide whether to elect the center right party, which is willing to accept the austerity conditions (although hoping for some alleviation) imposed by the Troika or to elect the new left, and reject conditions of austerity while still hoping to remain in the eurozone.

Although the National Assembly elections in France have received far less attention than Ireland's vacillation or Greece's endless gyrations, Germany's response going forward will depend much more on the results in France.

In his first few weeks in office, the new French President Francois Hollande has a bit awkwardly, yet steadily stated his case to NATO on early withdrawal of French troops from Afghanistan, to the EU summit on the need to push growth within the austerity agenda and on his support for a (so far undefined) Eurobond. As these issues were at the center of his campaign , he needs to appear resolute and firm in his promises in order to win a solid majority in the National Assembly and to insure support for his domestic agenda. Although the polls are in his favor and give high ratings to his cabinet, his domestic agenda is already proving contentious as he made overly ambitious promises to increase public expenditures, raise the minimum wage, reverse Sarkozy's reforms on retirement age and pension policy, while imposing sharp increases in tax rates on the highest earners. As the first Socialist in office since Mitterrand, Hollande is caught between traditional union driven demands and unique crisis driven pressures of the market and the EU.

Out of courtesy and in need to establish a good relationship with a formerly unknown and untested politician, EU leaders and Obama have cut Hollande some slack. Although Angela Merkel made her views clear on refusing to consider the concept of Eurobonds, (a de facto pooling of EU resources which as history proves, always requires Germany to carry a bigger share of the commitments) she is also under domestic pressure as she faces a weaker coalition. She has to carefully balance her hard line which appeals to her domestic constituency and the need to maintain consensus among her EU partners as the French, Italian and even the European Central Bank lean toward greater flexibility.

Whether Eurobonds are reconfigured into more narrowly defined and acceptable project bonds, or whether the European Stabilization Mechanism (ESM) takes on the functions of a quasi development bank, some modifications (real, diplomatic or semantic) will have to take place in order to provide Greece with additional support under strict supervision and oversight.

If Francois Hollande gains a solid majority, then Merkel will need to start real negotiations. The initial Sarkozy-Merkel relationship was often tense and uncomfortable until the crisis forced them to find common ground and present a solid front. Hollande and Merkel, whether they work in unison or end up doing a "good cop-bad cop" routine on pushing both a growth and austerity agenda, will need to quickly reaffirm French German cooperation as the focal point of the eurozone. Any sign of deeper disaccord or mixed messages in this core partnership would confuse the markets and risk a loss of confidence in the EU's decision making process.

If Hollande secures his position and no longer needs to guarantee support at home, he will have to be more pragmatic and open to compromise in order to move the European agenda forward.

But if Hollande ends up with a weak majority or loses the majority to the UMP, then Merkel will have the upper hand and negotiations will become much tougher. Under those circumstances Hollande would have to reshuffle his cabinet and focus all his attention on domestic politics in the middle of the crisis. Distracted or weak French leadership will impact on all EU decision making processes.

The French legislative results will also affect Greece which goes to the polls on June 17. If Hollande does very well, Greece may see France as a counter weight to Germany's intransigent approach and hope for some modification which would be a positive for the center right pro-euro party. But, if Hollande is seen as weak or worst case, has to enter into an early coalition, Greece may in turn overreact and elect the left with its unrealistic and perilous agenda.

The best scenario would be: a Yes vote in Ireland, Hollande with a respectable majority willing to calibrate his position, and a center right government in Greece willing to stay in the euro and making its case to the EU and the markets from a position of relative consensus. This may be wishful thinking, but whatever the outcome, in the next month France holds the key as the world waits.