Europe awaiting France to temper austerity: Hollande

PARIS Wed Apr 25, 2012 2:19pm EDT

1 of 7. France's President and UMP party candidate for the 2012 French presidential elections Nicolas Sarkozy speaks to supporters at La Mutualite meeting hall in Paris after early results in the first round vote of the 2012 French presidential election April 22, 2012.

Credit: Reuters/Yves Herman

PARIS (Reuters) - France's Socialist presidential frontrunner Francois Hollande said on Wednesday that leaders across Europe were awaiting his election to back away from German-inspired austerity, and he welcomed a call by ECB President Mario Draghi for a growth pact.

Hollande says a budget discipline treaty signed by 25 EU leaders in March would plunge Europe into a deep recession.

At a presidential-style news conference, the self-confident favorite said that if he wins a May 6 runoff against President Nicolas Sarkozy he would set out his ideas for reforming the pact in a letter to European leaders the very next day.

The conservative Sarkozy has been German Chancellor Angela Merkel's main partner in managing the euro zone debt crisis that erupted in late 2009, jointly crafting the fiscal compact that Hollande has vowed to renegotiate.

"On this front things are already moving forward. Before Sunday's election, heads of state were already starting to say what I was proposing - the ambition for growth, the willingness to include more in the treaty than just fiscal discipline and sanctions," Hollande said.

"Today many heads of state and government are waiting for the French election to open these discussions," he said, citing Spain and Italy among countries resisting excessive austerity.

The Socialist leads the incumbent by around 10 points in opinion polls, but a record showing by the far-right National Front anti-immigration crusader Marine Le Pen in Sunday's first round has forced both finalists to make a pitch for her voters.

Sarkozy, who has veered sharply to the right with tougher talk on immigration and security, ruled out any election pact with the National Front on Wednesday. He sought to cast his challenger as a mortal danger to France's economy.

Insisting that he was not questioning the principle of balanced budgets, Hollande said he would have a "firm and friendly" discussion with Merkel on the pace of fiscal consolidation.

In the first clear indication that he would not necessarily seek to change the existing text, he said that whether a growth pact was added to the treaty or agreed in a separate document was a matter for negotiation, he said.

Hollande said his letter to EU leaders would suggest four changes, including the creation of joint European bonds to finance infrastructure projects and greater investment by the European Investment Bank (EIB).

He also backed a financial transaction tax levied by like-minded countries to help fund youth and education projects and a more efficient deployment of EU regional development resources.

Hollande welcomed Draghi's call for a "growth compact" in the European Parliament on Wednesday, although he recognized that the central bank chief did not necessarily envisage the same kinds of measures he was advocating.

Draghi did not question the thrust of the fiscal compact - of which he was a leading advocate. He has long argued in favor of structural reforms to labor, goods and services markets, which would increase the flexibility of European economies and their growth potential.

"This goes in the direction which I was talking about," Hollande said. "He is not necessarily talking about the same measures as me to stimulate growth."

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Graphic on polls r.reuters.com/was36s

Election online link.reuters.com/pyr27s

Runoff calculator: r.reuters.com/nym77s

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GESTURE TO BERLIN

The fiscal pact, which would oblige countries to write a commitment to run a balanced budget into national laws, was a key condition of Germany's support for bailouts of struggling euro zone economies such as Greece and Portugal. Three countries have already ratified the budget discipline treaty, which is due to take effect from the start of next year.

Sarkozy, fighting for his political survival, said he would put the balanced budget "golden rule" to a referendum later this year if he was re-elected and a Socialist-controlled Senate refused to ratify it. Hollande has insisted it is not necessary to write a balanced budget rule into France's constitution.

The prospect of Hollande seeking to renegotiate the fiscal compact has sent jitters through financial markets, even though his proposals are already on the European Commission agenda.

Hollande said that in addition to his proposals on growth, EU leaders would need to discuss with the ECB measures to halt speculation and encourage more lending by banks.

"The main risk at the moment is that European economy remains mired in recession due to a lack of credit for companies," Hollande said.

While he supports changing the ECB's mandate to include supporting economic growth - as is the case with the U.S. Federal Reserve - Hollande said this was not a prerequisite for the central bank taking a more active role. He acknowledged strong German opposition to any deviation from the ECB's sole mission to ensure price stability.

NO PACT WITH THE FRONT

Sarkozy warned that Hollande's election would make France a target for speculators. But with French voters angry at his brash personal style and unemployment running at a 12-year high, he faces a tough battle for re-election.

In another blow to Sarkozy, centrist Francois Bayrou, who came fifth with 9.1 percent of the vote, accused the president of being "absurd and offensive" in comparing his voters with those of Le Pen. In an open letter to both candidates, he called for more civil, clean and moderate politics, appearing to lean towards Hollande without explicitly endorsing him.

An opinion poll this week showed two-thirds of Sarkozy supporters want his conservative UMP party to break with past policy and strike a deal with the National Front after Le Pen's 17.9 percent score on Sunday made her 6.4 million backers key to the May 6 presidential election runoff.

Sarkozy ruled out any alliance with the far-right National Front that would give it cabinet jobs or seats in parliament.

"There will be no pact with the National Front," Sarkozy told France Info radio on Wednesday, saying the parties disagreed on too many issues to imagine far-right ministers.

With only 10 days to turn public opinion in his favor, he vowed to further toughen a crackdown on immigration and combat industrial offshoring in response to the Le Pen vote.

The National Front has barely been in parliament since 1988, when a change in the voting system ended its 35-seat bloc. It briefly won a single seat in 1997. Le Pen is now determined to break through with several seats in June.

Based on Sunday's vote, the party could reach the second-round in up to 345 constituencies in which more than 12.5 percent of registered voters voted for Le Pen. That is more than half the lower chamber's 577 seats and could decimate the UMP by splitting the right-wing vote.

(Additional reporting by Brian Love, Elizabeth Pineau, Emmanuel Jarry; Editing by Paul Taylor and Janet Lawrence)

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