Hollande plans for EU growth wins support

2012-04-25 22:42

Paris - French election favourite Francois Hollande's campaign gained strength and credibility on Wednesday as the key plank in his economic strategy gathered increasing support in Europe.

Hollande's call for the EU fiscal pact to be renegotiated to include ways to boost growth had been derided by his poll rival President Nicolas Sarkozy as naive and dangerous, a breach of France's word to its partners.

But on Wednesday, European Central Bank governor Mario Draghi called for growth initiatives and Germany's Angela Merkel conceded that new measures were needed, although neither shifted in their support for the pact.

"On the day after the election, if I have received a mandate, I will send a memorandum to the other heads of state on renegotiating the treaty," Hollande said, after winning Sunday's first round of the French presidential poll.

He cited four planned changes: The creation of eurobonds to finance industry infrastructure projects, freeing up investment funds, a financial transaction tax and mobilising unused structural investment funds.

Some of these measures will be tough to negotiate on a European level, but Hollande unveiled them as the debate in Europe began to shift away from the tight deficit-cutting rules imposed by the Sarkozy-Merkel alliance.

Shares on the Paris stock exchange closed up by more than 2% after news of Draghi and Merkel's comments broke, belying fears that the prospect of a Socialist victory on May 6 would shake market confidence in France.

"What is most present in my mind is to have a 'growth compact'," Draghi told the European Parliament's Economic and Monetary Affairs Committee, in comments that Hollande welcomed as consistent with his position.

Nevertheless, an ECB spokesperson insisted that Draghi's words should not be seen as policy change. The bank chief has long argued that deficits must be slashed if governments were going to regain market confidence.

Zero deficit

Hollande has vowed to reduce France's deficit to zero by 2017, but he argues revenue growth from increased output is more important than spending cuts.

Merkel, the arch-defender of the austerity rules embedded in the fiscal pact, conceded that Europe might need means to encourage output "in the form of structural reforms".

"On the one hand, that can be done with a sustainable fiscal policy... but that is a necessary but not sufficient method of overcoming the crisis because we also need growth," she said, endorsing Draghi's remarks.

Hollande insisted that European leaders were coming around to his idea that supporting growth was "ultimately a more effective way of reaching the same goal of controlling the debt and reducing deficits".

"Things have already progressed well... the ideas are moving forward, probably due in large part to the vote of the French people," he said.

He said he would hold "firm but friendly" discussions with Merkel.

Asked about Draghi's comments in an interview with TF1 television, Sarkozy said "everyone wants growth" but that Hollande's proposals to increase spending and hire thousands of state employees were irresponsible.

You will pay

"Mr Draghi wants growth, I want it to, but Mr Draghi is not telling me that to have growth you have to increase public spending and the number of public employees, nobody thinks that, nobody is doing that," he said.

"We would be the only ones in that situation and I am saying a simple thing to the French. Who will pay for this? You will."

The French Socialists had long argued that they have discreet support in other European capitals, despite Merkel and Britain's Prime Minister David Cameron having publicly backed fellow right-winger Sarkozy.

But the credibility of Cameron's austerity measures was rocked on Wednesday with the confirmation that Britain was back in recession, and EU-mandated cuts in spending have triggered protests in Greece, Italy and Spain.

Draghi and Merkel's statements will strengthen Hollande's position as he faces a make-or-break debate with Sarkozy next week before the run-off in which his inexperience and economic plan are likely to come under attack.

Hollande won 28.6% of the vote in the first round to Sarkozy's 27.18%, and is forecast in opinion polls to beat the incumbent by 55% to 45 on May 6, winning control of the world's fifth greatest power.