Hollande floats €120bn 'European growth pact'

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French President François Hollande wants the European Union to agree before the end of 2012 on growth-boosting measures worth €120 billion, putting him on a collision course with German Chancellor Angela Merkel who has ruled out further spending to restart Europe's ailing economy.

The money is to come from a combination of short-term growth instruments such as project bonds, reallocated EU structural funds and fresh investment capital from the European Investment Bank (EIB), according to the weekly Journal du Dimanche on Sunday (17 June).

The paper cited a proposal circulated by France ahead of an EU summit on 28-29 June, which is expected to agree a growth agenda as well as a longer-term roadmap for greater fiscal and economic integration in the eurozone.

The newspaper also reported that France has accepted Germany's rejection of its call to issue mutualised debt in the euro bloc and now agreed that so-called euro bonds were a project to be looked at over a 10-year time frame.

Hollande submitted his ideas to EU partners and the European Council a few days ago ahead of a Group of 20 summit in Mexico on Monday and Tuesday and four-way talks with the leaders of Germany, Italy and Spain in Rome on Friday.

"From June, the European Council should adopt growth measures having a rapid impact and totaling 120 billion," the newspaper cited Hollande as saying in the document, entitled "European growth pact."

Hollande said the measures should be enlarged upon before the end of 2012 with the creation of a financial transaction tax and measures to create jobs, especially for young people.

The 120 billion would be made up of some 55 billion of unused EU structural development funds, some 4.5 billion in project bonds for infrastructure projects and 60 billion in capital that could be raised by the EIB if it were given an extra 10 billion in financing, the newspaper said.

Hollande, France's first Socialist leader in 17 years, is demanding that Europe complement a budget discipline pact agreed earlier this year with a growth pact, an idea so widely supported that Berlin has come around to it.

Collision course

Hollande has put himself on a collision course with the German government, however, with his push for the eurozone to adopt new mechanisms to insulate member states and their banks from market turmoil, such as a joint fund to pay down debt.

Hollande discussed his ideas with Italian Prime Minister Mario Monti in Rome on Thursday (14 June) and also circulated them to European Council President Herman Van Rompuy and others two weeks before the crucial June 28-29 summit.

The French president also wants the eurozone's ESM permanent rescue fund to be given a banking licence to allow it to borrow money from the European Central Bank to bolster its firepower.

German Chancellor Angela Merkel strongly opposes creating eurobonds in the near term or having Germany underwrite debt or guarantee bank deposits in the eurozone.

The pair discussed Greece's election and the eurozone's debt crisis by telephone on Saturday (16 June) amid a deepening rift between Europe's top two economies over solutions to the crisis.

Hollande's office said the "constructive" and "fruitful" call was to prepare ground for next week's Group of 20 meeting in Mexico, which will focus on the crisis, and a June 28-29 summit where European leaders aim to agree on measures to tackle it.

The two leaders are likely to also have addressed what was seen as a public squabble in the past week, with the centre-right Chancellor criticising France's economic performance and the Socialist Hollande snubbing Merkel by inviting German opposition leaders to talks at his presidential palace.

Timeline: 
  • 28-29 June: Formal EU summit in Brussels to finalise growth agenda and discuss "roadmap" for greater European integration.
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