Sarkozy woos finance ministers on deficits and IMF

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Having convinced fellow eurozone nations that his country should be allowed to bypass a deal between the bloc’s 27 members on eliminating budget deficits in order to boost growth and employment, French President Nicolas Sarkozy has also won support for his candidate to head the International Monetary Fund (IMF).

  • Stability and Growth Pact 

French President Nicolas Sarkozy announced on 9 July that, although he would try to stick to the pledge made by his predecessor Jacques Chirac to eliminate France’s budget deficit by 2010, sluggish growth in the French economy meant he could not guarantee fulfilling this promise before 2012. 

Finance ministers from all 27 EU members had in fact pledged, at a meeting in Berlin in April, to take advantage of the current economic upswing in order to balance their books by 2010. 

But Sarkozy, who was elected in May, wants to come back on this deal, arguing that he needs to give France a “fiscal shock” in order to jump-start the economy and tackle high levels of unemployment. 

His planned large-scale tax cuts would render France unable to cut its deficit by 0.5% this year, as foreseen by the Berlin agreement. Instead, Sarkozy says that he will bring the deficit down from 2.5% in 2006 to 2.4% in 2007. 

While euro nations have no say over France’s public spending so long as the deficit remains under the 3% of GDP ceiling, the move is already perceived as a stab in the back by some countries, such as Germany, which have already carried out painful structural reforms in order to comply with Europe’s budgetary rules. 

There is also concern that France’s attitude could inspire other nations – undermining the Stability Pact, just two years after it was taken apart and reconstructed following demands for more flexibility by France and Germany. 

  • IMF 

The EU’s 27 finance ministers also gave backing to the French former finance minister as the European candidate to head the International Monetary Fund once Spain’s Rodrigo Rato resigns in October. 

“Ecofin agrees to support Dominique Strauss-Kahn for IMF director,” the Portuguese Presidency announced on 10 July. Sarkozy has been lobbying hard to get his man into the IMF top seat. 

But a number of countries are concerned about France leading the IMF, as three Frenchmen have already held this spot for 30 of the IMF’s 61 years of existence and at a time when the top seats at the European Central Bank, the World Trade Organization and the European Bank of Reconstruction and Development are also held by France. 

British Finance Minister Alistair Darling stressed that there had not been a formal agreement and that, while Strauss-Kahn would be an appropriate candidate, “the British government wants to see what other candidates there may be put forward from other parts of the IMF”. 

Under a controversial international agreement, the chief of the IMF is traditionally from Europe while an American is in charge of the World Bank, but Darling has argued that the most appropraite candidate – irrespective of his or her origins – should be appointed. 

While the Portuguese Presidency did not rule out other countries or regions presenting candidates, he stressed that Strauss-Kahn was the EU candidate, arguing that the urgency of the appointment meant that the EU could not follow “an ideal procedure” on this. 

  • Extending the Euro: 

Finance ministers also gave Cyprus and Malta the definitive go-ahead to adopt the euro as of next year (EURACTIV 22/06/08). 

French President Nicolas Sarkozy insisted that he was not asking for a delay or seeking to break EU rules, but said that the Stability and Growth Pact needed to be applied in an "intelligent and dynamic" manner. "I believe in the Pact and the necessity of the Pact and obviously I want to operate in the rationale of the pact," he stressed, adding: "If we have more growth than expected, we will devote all that to consolidation and we will get there," refering to the 2010 target. 

But, he argued: "France is engaged in an effort that has no precedent…If we don't have the expected growth then we will have to say 2012. It's just a question of being honest. If we don't get to 2010 I will be the first to regret that, but 2012 is not a ridiculous date." 

French Finance Minister Christine Lagarde told reporters that Sarkozy had been "heard, understood and encouraged" by other euro countries. 

Finance Commissioner Joaquín Almunia said that having the French president coming and talking about structural reforms in such an "enthusiastic" way "was a very positive thing" and if anything would strengthen the Stability Pact. 

However, he did remind Sarkozy that "budgetary discipline and economic reform are not irreconcilable" and in fact, he added, go hand in hand. 

German Finance Minister Peer Steinbrueck said that several ministers had raised concerns over the impact of one of the largest euro nations deviating from EU budget rules — even if France does stick to the spirit of the law by continuing to cut debt at a slower pace. 

"This automatically has effects on the other member states and their debates in domestic politics," he said. "It doesn't help the credibility of the Stability and Growth Pact." 

Nevertheless, he said he left the meeting satisfied that "France can attain the agreed line in 2010". 

Luxembourg Prime Minister Jean-Claude Juncker, who chairs the Eurogroup meetings, sounded happy with the plan. "The message is 'Yes' to reform, 'Yes' to the intentions of President Sarkozy, because they are in keeping with our desire to meet the medium-term objective [of a balanced budget] in 2010," he said. 

However, Dutch Finance Minister Wouter Bos was more sceptical, saying that Sarkozy was scant on details, which are due only in September. "What made discussion difficult was that he did not set his programme," he said. "We feared it might have a negative impact on the chance of achieving [balanced budgets] but nobody could put their finger on it because we did not know the details." 

EU finance ministers held their first meeting under the Portuguese Presidency on 10 July 2007 in order to discuss priorities for the next six months. 

As usual, the meeting was preceded, on 9 July, by a meeting of the 13 finance ministers from the eurozone countries. 

However, more unusual was the presence of newly elected French President Nicolas Sarkozy at this meeting. Indeed, the energetic new leader had invited himself along to the event in order to defend his plans to prolong France's budget deficit, in defiance of the rules governing the euro and despite criticism from other EU members. 

  • September 2007: Sarkozy's budget plans for the next few years will be examined by eurozone members.

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