Sarkozy breaks 'taboo' by calling for ECB debate
French President Nicolas Sarkozy, facing the first round of elections this weekend, said in a campaign speech yesterday (15 April) that he wanted to open a debate on extending the mandate of the European Central Bank (ECB) to support economic growth.
"As for the European Central Bank's role in supporting growth, we, the French, are going to start a debate," Sarkozy told tens of thousands of supporters at the central Place de la Concorde in Paris.
The Financial Times reported that Sarkozy has broken a months-long agreement with German Chancellor Angela Merkel not to discuss in public the role of the ECB.
Sarkozy declared: "We cannot have taboo subjects. We cannot have banned debates".
Sarkozy is fighting an uphill battle ahead of the two-round election starting on 22 April, with polls placing his Socialist rival François Hollande up to 10 percentage points ahead in the 6 May runoff.
"If we do not change Europe, if we do not create a Europe of production, of investment, we cannot have growth. If the ECB does not support growth, we will not have enough growth," he said.
The ECB's mandate is to maintain price stability in the eurozone and does not include provisions for supporting or encouraging growth.
Sarkozy was part of the push behind the ECB's new lending programme to banks that helped calm market turmoil over the eurozone's debt woes. In his speech on Sunday, he appeared to be responding to Hollande who wants Europe to add pro-growth clauses to its new budget stability treaty.
Sarkozy's advisors say the president's aim is not to change the ECB’s statutes, because such a proposal is unlikely to be accepted by other eurozone partners, the daily Le Fiagaro reported. Rather, he wants to engage in a dialogue and convince the ECB to help by aiming for a more favourable exchange rate.
As European leaders struggle to find a solution to the eurozone's debt crisis, attention has turned on the European Central Bank to act by buying up sovereign bonds of troubled countries.
The ECB has already taken action on the sovereign bond market but it is prevented from doing so on a large scale by its mandate, which stipulates it must first control inflation. Any massive intervention would indeed be equivalent to printing money, thereby pushing inflation up.
French ministers have called for the central bank to intervene massively to counter a market stampede, while Germany has said the EU treaty bars it from acting as a lender of last resort.
The ECB funneled over €1 trillion into the financial system with twin ultra-cheap funding operations in December and February to head off a credit crunch that risked exacerbating the eurozone crisis and threatening the currency bloc's future.
Eurointelligence, an economic commentary and analysis website run by Financial Times associate editor Wolfgang Münchau, said its supports calls to refocus the ECB on growth. However, it said that doing this through the exchange rate "is unlikely to happen, and very likely to produce a global backlash."
"It is depressing to see that a relapse to Mercantalism seems to be the only alternative to German-inspired austerity policies European politicians are able to come up with. The fact is that if you want the ECB to focus on growth, you need to change the Treaty. It’s all written in there."