U.S. News

Sarkozy to Tell Euro Nations why France Should Delay Debt-Cut Goal


France's crusading new president will charge Monday into a carefully balanced set of economic rules designed to keep the currency his nation shares with 12 other countries stable and trusted.

Determined to speed up the sluggish French economy, the new government plans to cut taxes, reform higher education and work to slash a jobless rate that is the highest in western Europe.

That will cost money and slow down plans to cut public debt - knocking to one side an informal agreement among the nations that use the euro to eliminate their budget deficits by 2010 at the latest.

French Prime Minister Francois Fillon confirmed last Wednesday that France wanted to delay that until 2012, immediately raising hackles across Europe.

"If it were to be confirmed that France is dropping out of the so-called midterm objectives that we agreed with France, with everyone ... then there will be a problem," German Finance Minister Peer Steinbrueck told reporters last week.

Jean-Claude Trichet, the president of the European Central Bank, also said he was worried about forces in "a certain member state" - understood to be France - that were in favor of relaxing budget rules, saying it was imperative that all countries stick to the rules.

Both France and Germany have only just managed to stop breaking EU budget rules after their budget deficits ran over a 3% limit stipulated under euro rules. Booming exports and a recovering EU economy generated tax windfalls last year that helped them scrape under the limit.

France wants to stop there, abandoning a pledge that countries should keep on paying off their debt - particularly as an aging Europe will soon have to face bigger public spending outlays in state pensions and health care.

The European Commission - which acts as a watchdog on each EU economy - said it was "common sense" that a healthy state had to have its finances in shape as well.

"Having sound public finances is not limited to having a deficit below 3%," EU spokeswoman Amelia Torres said Friday. "That in itself is not enough, you need to move forwards, toward the midterm goal ... being a zero deficit goal, so a balanced budget."

European Taboo

Sarkozy also broke another European taboo last week when he mooted the possibility of politicians getting more involved in currency policy - as the strong euro hurts French, but not German, exports.

"I voted for the euro, I believe in the euro," he said in a speech he gave in Strasbourg. "But in the end, currency is not a taboo subject. I want it to be of use to growth, of jobs for your children."

Berlin and the Frankfurt-based ECB - which decides to raise or lower euro area interest rates - fought hard for monetary issues to be decided free of political interference before the euro launched in 2002.

When the ECB started its recent series of interest rate hikes in late 2005, it angered some countries that claimed higher borrowing costs could hurt a fragile economic recovery - even as others worried they did not go far enough to calm overheating property markets in Ireland and Spain.

The European Commission insists that euro nations need to be on the same track and pull together to reduce these problems - and unless Sarkozy can convince all other nations to play it his way, France's decision to step out of line threatens the careful consensus that governs Europe's currency project.