French presidential election
Hollande’s victory begs question: What defines a ‘growth pact’?
By Gaspard Sebag and Nathalie Vandystadt | Monday 07 May 2012
François Hollande’s bid to “reshape European construction toward growth” was welcomed by several of his counterparts, and many of them hope that his election as French president, on 6 May, signals a departure from the austerity-driven policy making championed by German Chancellor Angela Merkel. A growth compact to complement the ‘fiscal compact’ aimed at tightening budgetary discipline at national level is on the cards. Much of its content will depend on the new Franco-German relationship.
Shortly after his victory over his predecessor at the Elysée Palace, Nicolas Sarkozy, Hollande announced he will make his proposals for a “pact of responsibility, growth and governance” known to his European counterparts at the end of May in view of preparing the 28-29 June summit. “Austerity can no longer be the only option,” added the Socialist president-elect.
Hollande’s call for a renegotiation of the fiscal compact, championed by Berlin, has been met with a flat refusal from the German chancellor. Twenty-five EU leaders have signed the new treaty, which will stay outside the EU’s architecture, and three member states have already ratified it. Instead, the focus should be on building a eurozone “growth pact” as suggested by European Central Bank President Mario Draghi. Berlin is on board. “We will work together [with Hollande] on a growth pact for Europe,” said German Foreign Affairs Minister Guido Westerwelle. The major question will be what type of measure will be put forward to encourage growth.
Stimulating growth through old-style Keynesianism is, however, out of the question: “The means cannot be extra public spending, since we want to rein it in, nor can they be tax relief, which is forbidden,” Hollande told
Slate.fr. All along his presidential campaign he has championed four proposals at European level: increasing the capital of the European Investment Bank (EIB), a financial transaction tax (FTT), remobilising structural funds toward growth and creating eurobonds or project bonds. Hollande and Merkel are furthest apart on this later point, which would probably mean either pooling domestic debt or enabling greater involvement of the European Central Bank (ECB). Bridge-building will be necessary as the new French president is unlikely to settle for non-binding growth measures as was the case at the March European Council. Merkel has already invited Hollande to Berlin to hold talks. The meeting may take place within a week at the earliest. Previously, the chancellor had publicly declared her support for Sarkozy.
The general rebalancing of the austerity policies pushed for across Europe with a growth bid was welcomed in several capitals and at EU level. Italian Prime Minister Mario Monti said he hoped for close cooperation targeted “at an increasingly efficient and growth-oriented union”. “We clearly have a common objective: relaunching the European economy to generate sustainable growth,” said, for his part, José Manuel Barroso. “We must now transform these aspirations into concrete actions,” he added. The Party of European Socialists’ interim leader, Sergei Stanishev, described the result of the French presidential elections as a “profound rejection of the ‘Merkozy’ madness that has choked European economic growth for the last two years”. Denmark’s Socialist Premier Helle Thorning-Schmidt, who holds the rotating EU Presidency, remained measured and underlined her hope for a “beneficial and close” cooperation with Hollande.
Leaders belonging to European People’s Party (Sarkozy’s party) greeted the Socialists’ victory with sobriety. UK Premier David Cameron’s spokesperson congratulated Hollande and said he wished to continue “building on the very close relationship that already exists between the UK and France”. Mariano Rajoy, the Spanish prime minister, referred to his “obligation” to get along with the new president.
Meanwhile, in the European Parliament, EPP leader Joseph Daul (France) encouraged Hollande to maintain France’s special relationship with Germany and focus on the Community method rather than the intergovernmental method, which Sarkozy favoured. Guy Verhofstadt (Belgium), who heads the ALDE group, expressed his hope that Hollande can revitalise the European project and give a decisive push to his pet project: the creation of eurobonds. Naturally, S&D leader Hannes Swoboda welcomed the victory of the Socialist candidate in France and the chance for a turn toward growth.
Incumbent French President Sarkozy became the eleventh eurozone leader to be ousted from power since the beginning of the euro crisis.
Merkel has already invited Hollande to Berlin
Commission prepared to debate growth
After hailing Nicolas Sarkozy’s role as a “captain president” in the European arena, French Commissioner Michel Barnier (internal market) said he was not surprised by François Hollande’s determination to launch a debate on growth at European level. It is even “urgent” to do so, he told the French press, “provided we don’t touch the fiscal pact, the golden rule or the ‘European semester’,” in other words the European arsenal for keeping national budget deficits under control. At meetings between the two men, the new French president has “said he would respect deficit control commitments,” added Barnier. The commissioner added in connection with the debate on growth that “the Commission has prepared for it”. He mentioned plans by the College of Commissioners to improve use of the billions allocated to the Structural Funds, to make the European Investment Bank (EIB) more efficient and to launch project bonds to finance major infrastructure networks. The Commission also calls for a European industrial policy. “But I don’t think we can promote growth through public spending, at least not massively. We first need to make better use of available funds […] by strengthening isolated initiatives, at the level of the 27”, through European single market tools, concluded the commissioner.