François Hollande, the French Socialist presidential candidate, is not seeking to unpick the European fiscal pact but wants to complete it with tools to promote economic growth, one of his senior advisers signalled on Tuesday.
Financial markets have been unsettled at the prospect of a victory for Mr Hollande in the May 6 run-off against Nicolas Sarkozy, fearing his refusal to ratify the treaty unless his demands are met could unleash fresh euro zone wrangling on deficit cuts.
“What concerns us is not what is in the treaty, it is what is not in the treaty,” Michel Sapin, a former finance minister who is Mr Hollande’s policy chief, told the Financial Times in an interview. However, he was emphatic that the agreement as it stood does too little to ensure Europe will escape an austerity trap.
“A treaty that is based only on budgetary discipline is a treaty that will drive Europe to the wall,” he said. Achieving growth “is the only way to counter unemployment and at the same time start to reduce deficits and debt under socially and politically acceptable conditions”.
Mr Hollande was fully committed to his pledge to reduce France’s deficit to 3 percent of gross domestic product in 2013 and eliminate it in 2017, which conforms with targets set in the fiscal pact, Mr Sapin insisted. “He is not saying we must renegotiate the budgetary discipline.”
The suggestion that Mr Hollande, if he beats Mr Sarkozy in the final round of the election, would be satisfied with some kind of addition to the treaty to inject measures to boost growth will ease concerns, especially in Berlin, of a potentially damaging new battle over the accord.
But Mr Sapin stressed that Mr Hollande did not intend to be fobbed off with cosmetic tweaks. Mr Hollande has said if he becomes president, France will not ratify the treaty without changes. Concrete moves to regenerate growth are essential, he said.
“If not, it creates a vicious circle – which the markets also fear – in which austerity creates recession, which creates deficits, which creates austerity. We must not fall into this trap,” he said. “[We want] a treaty that imposes budget discipline but which at the same time?... creates not words but tools to push growth across Europe and in each country.”
Nor, he said, was Mr Hollande seeking a Keynesian injection of public funds into the economy, similar to the action taken across Europe in 2008 and 2009 in response to the financial crisis sparked by the collapse of Lehman Brothers.
The measures Mr Hollande would press for, Mr Sapin said, included a “reorientation” of European Union structural funds towards “productive enterprise and research”.
He wants a boost in funding for the European Investment Bank to finance big infrastructure projects across the continent and the creation of European “project bonds” – “not to finance [sovereign] debt but to finance projects, for example in the development of new-energy technology”.
These proposals have been widely canvassed and are likely to receive support from other countries at a time when concern is mounting that austerity is choking growth.
But Mr Hollande has entered more controversial territory by suggesting that the role of the European Central Bank should, in the words of his manifesto, also be “reorientated to favor growth and employment”.
“It is a very delicate subject,” Mr Sapin said. “[Mr Hollande] never has and is not calling into question the independence of the ECB. He is not calling for a modification of the [ECB’s founding] treaty. What he says is that the ECB must take into account this issue of growth in Europe – it has already done so and it should do more.”
This is no more than a restatement of longstanding French views on the ECB – Mr Sarkozy has said the same thing – which are at odds with Berlin’s insistence on the central bank sticking strictly to its price stability mandate.
Mr Hollande would also reopen the issue of giving the European Stability Mechanism, the euro zone rescue fund that will be in place from July, the status of a bank so it had recourse to the ECB for funding, Mr Sapin said. Mr Sarkozy’s efforts on that front were firmly rebuffed by Ms Merkel. “Our aim is not to have a confrontation with Germany, it is to find?...?what unites the two cultures and permits them, with a single currency, to have policies which point in the same direction,” said Mr Sapin.