Hollande starts to backtrack on EU fiscal treaty

François Hollande March 2012 unhappy.jpg

The campaign manager of François Hollande, the socialist candidate in the French presidential election who currently leads in opinion polls, has backed away from previous demands to radically "renegotiate" the EU's fiscal discipline treaty.

Pierre Moscovici confirmed on Tuesday (3 April) that the Socialists would merely push for "add-ons" to complete the treaty with more pro-growth policies, but would not request a fundamental re-write.

Hollande has also dropped earlier demands for Eurobonds to mutualise EU debt, saying he now aims to add to the treaty "the capacity for Europe as a whole to issue bonds, not to mutualise sovereign debt but to finance new development projects," an idea which draws on plans already unveiled by the European Commission.

The fiscal treaty, signed in December by 25 EU member states last month, requires signatories to introduce national laws to balance their budgets. It would empower the European Court of Justice to fine a country up to 0.1% of GDP if this is not done a year after ratification.

It is due to take effect in January once ratified by at least 12 countries.

Berlin increasingly relaxed about Hollande

Hollande strongly rejected the treaty, arguing that relying on austerity alone would drag Europe's fragile economy back into a prolonged recession and saying he would seek to "renegotiate" it if elected.

German officials have urged Hollande's camp to drop the term "renegotiation", which triggered alarm bells in Berlin, which had been urging for more fiscal discipline in the wake for the eurozone debt crisis.

Sources in Berlin suggest some addition to the treaty to include more emphasis on stimulating growth could be possible, provided the key clauses on fiscal responsibility remain intact.

"I accept this discipline," Hollande told a meeting of European Socialists last month, repeating his pledge to introduce a law to balance France's budget by 2017, one year later than Sarkozy has promised to do so.

In Berlin, officials are increasingly relaxed about Hollande's plan. While the official line remains "no renegotiation", one senior source said Germany would be willing to agree on a set of principles to append to the fiscal compact including language on growth.

Pushing on an open door

A European Union source said informal work was already going on to draft a political text on promoting growth and jobs that could go alongside the treaty if Hollande wins.

That could draw on existing European Commission proposals for "project bonds", due to be reviewed by a June EU summit. If leaders give the nod, the Commission would launch a pilot phase this year with the European Investment Bank to stimulate private investment in transport, energy, and information technology – almost exactly what Hollande proposes.

Meanwhile, Hollande is pushing on an open door with his call to include in the treaty a clause for better use of EU funds to help poorer regions and more lending from the EIB. At a January summit, EU leaders said they would deploy €82 billion of unspent funds from the EU's 2007-2013 budget to help create jobs, especially for the young.

Moreover, his demands for balancing the treaty with growth measures have been taken up by left-wing opposition parties ahead of elections in Germany and Italy next year, providing leverage to his negotiating position.

Merkel requires the support of the SPD to reach the two-thirds majority in the Bundestag needed to ratify the treaty. The SPD has said, like Hollande, that a financial transaction tax is a condition for approving the text.

François Hollande, the Socialist candidate and current front-runner in the French Presidential election, has promised a break with the 'Merkozy' consensus on Europe's economic crisis.

By asserting, at the beginning of December, that he would renegotiate the EU's draft treaty on fiscal discipline, Hollande signalled to his European partners that he is ready to fight, even if the exercise is costly politically and would mean a time-consuming legal battle.

Hollande has also promised to start a debate on the role of the European Central Bank in the eurozone crisis.

The 2012 Presidential election in France is being held in two rounds, on 22 April and 6 May.

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