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.
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).