Sarkozy U-turn on ECB one week from French vote

16th April 2012, Comments 0 comments

France's President Nicolas Sarkozy launched himself into the last week of an increasingly unlikely re-election bid Monday with a surprise jab at the independence of the European Central Bank.

With just six days before the first round of voting, and with the right-wing incumbent trailing Socialist challenger Francois Hollande in the polls, Sarkozy re-opened debate on an EU economic strategy he signed only last month.

The French leader had begun his campaign by criticising Hollande over his vow to renegotiate the European Union fiscal growth pact, which Sarkozy said would undermine France's credibility with markets and its EU partners.

But, in a speech Sunday to tens of thousands of supporters in Paris's iconic Place de la Concorde, Sarkozy called into question another key plank in the EU strategy, the independence of the ECB, a red line for Germany.

"On the role of the Central Bank in supporting growth, we are also going to open a debate and we will push Europe forward," he declared. "If the Central Bank does not support growth, then we will not have enough growth."

The idea of expanding the ECB's role from simply ensuring price stability to one of boosting growth is anathema in Berlin and for Chancellor Angela Merkel, who had previously expressed support for Sarkozy's re-election campaign.

Sarkozy also took a swipe at the 1993 Maastricht Treaty, which enshrined the ECB's conservative role as an inflation watchdog on the model of Germany's Bundesbank and has since been the legal basis of European integration.

In the aftermath of the 2008 financial crisis and the subsequent sovereign debt crises among eurozone members, many voices -- particularly on the left -- have called for the bank to take a more active role in economic policy.

But Germany has stood steadfast against calls for euro devaluation, common EU government bonds or increasing the money supply, fearing the return of galloping inflation and of rising interest rates on its own debt.

France, under Sarkozy, initially fought this stance in private -- while sticking by Germany in public -- but Sarkozy came under increasing pressure as the French election campaign took an anti-EU, protectionist turn.

Hollande -- who is polling neck-and-neck with Sarkozy ahead of the April 22 first round but is the clear favourite to win the May 6 run-off -- mocked what he saw as the right-wing incumbent's late conversion to the left's view.

"It was about time he began to see clearly, just before the end of his term. It's just a shame he forgot about growth for five years. That's a long time, especially in a crisis," Hollande said Monday in a radio interview.

"The outgoing president has just promised to do what he didn't do. Well, I'm a candidate who will give the question of growth its rightful place on the day after May 6," he declared.

Hollande argued that if the ECB had intervened last year to buy Greek debt and if it had loaned directly to states rather than pouring liquidity into banks to encourage them to lend, the crisis could have been averted.

The German finance ministry refused to comment on Sarkozy's change of tack, but Berlin has fiercely defended the ECB's independence and limited mandate.

Sarkozy's camp has warned that if Hollande wins on May 6, the bond markets, which France relies on to finance its public deficit by rolling over debt, will take fright and push up borrowing costs.

Hollande has vowed, like Sarkozy, to get the deficit under control, but he has also threatened to renegotiate the EU fiscal pact signed last month, which sought to reassure markets with guarantees of austerity measures.

Sarkozy insisted that his change of tack on the ECB did not mean he was also calling the pact and "France's word" into question. "It's not just by writing the word growth down in a treaty that you get any," he said.

But a member of his team explained France would like to see a "dialogue between the European economic government" and the ECB to encourage a lower euro exchange rate that would help boost French and European exports.

Economists were sceptical of this, and some pointed out that Germany -- which exports high-quality, high-priced manufactured goods and buys in cheap commodity imports thanks to the strong euro -- would be hard to budge.

© 2012 AFP

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