French Socialists dig in heels on EU austerity

PARIS Wed Feb 22, 2012 10:23am EST

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PARIS Feb 22 (Reuters) - The French Socialists' abstention in a parliamentary vote on Europe's future bailout fund has provided new fodder for concern among EU-watchers about how a possible left-wing presidential election victory would affect the euro zone crisis.

The Socialist Party, whose candidate Francois Hollande leads opinion polls for the April-May election, sat out Tuesday's lower house vote to create a permanent European Stability Mechanism (ESM) in protest at austerity policies in Europe.

President Nicolas Sarkozy's conservative government called the move a "historic error" and berated the Socialists in parliament on Wednesday. Even the left-leaning newspaper Liberation was critical in an editorial.

"A vote today against the ESM is a vote against Europe, a vote against the euro and a vote against European solidarity, and it's not behaviour fitting to the gravity of the situation," government spokeswoman Valerie Pecresse said.

Prime Minister Francois Fillon accused the Socialists of bringing election campaign tactics into parliament.

In a scolding comment, Liberation said left-wingers were acting like ostriches. "Some of them quibbled, most found the most pressing thing to do was not decide and others stepped up their vindictive jibes," it said. "If the left wins power, it needs to do better. And know what it wants."

The abstention, which did not prevent the bill passing in the conservative-led National Assembly, was in line with Hollande's campaign pledge to seek to amend an EU fiscal compact agreed last month to add clauses on growth and investment.

While Hollande is staunchly pro-European and advocates fiscal discipline, his stance raised questions about the compatibility of his views with Germany's in resolving the euro zone's sovereign debt crisis.

"I don't think this is a game changer. But it can be interpreted as revealing a part of the Socialist platform - that to be European we have to be very pro-growth - which is at odds with the Germanic view on what solidarity means," said George Magnus, senior economic advisor at UBS.

"If we see more instances like this in the run-up to the election, they could be perceived as marking out a political and negotiating position vis-a-vis Germany which would be seen as quite different and potentially capable of causing uncertainty about how the process would evolve."

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The left objects to the fact that the creation of the ESM is conditional on ratification of a fiscal compact treaty that enforces austerity measures in countries with big deficits.

The ESM bill passed by 256 votes to 44, with 131 abstentions. Only the ruling UMP and centrists voted in favour.

"Austerity cannot be a condition of solidarity," said Martine Aubry, the Socialist Party leader who is set for a key ministerial post if Hollande wins power. "By this abstention we state our refusal of austerity."

The Socialists' leader in the lower house, Jean-Marc Ayrault, a Germanophile tipped for a government post if Hollande wins, said the new EU treaty was incomplete.

"Bringing debt and deficits under control, yes, but without investment mechanisms and deploying the ECB and euro bonds for growth it would be a treaty that starts as a failure," he said.

The issue highlights differences between France's two main political parties on how to tackle Europe's economic woes.

Hollande wants the EU treaty to stipulate that a certain amount of spending should go into investment, education and green energy. He also wants welfare clauses.

Those ideas would not necessarily jar with leaders in Italy and other southern states, and German Chancellor Angela Merkel has also begun to emphasise growth, although driven by structural economic reforms rather than public spending.

But EU leaders, and financial markets, would frown heavily on any attempt by Hollande to slow up the fiscal compact which Sarkozy and Merkel put together in recent months.

Analysts say the Socialists' behaviour, such as Hollande's recent lambasting of the financial sector, is more about keeping left-wing voters on board than indicative of future policy.

"There would be issues with Hollande, but not unmanageable ones," said Nomura analyst Alastair Newton in London. "The reality once one gets behind the desk in government is always slightly different to when one is on the stump campaigning."

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