France readies EU fiscal pact for green light

PARIS, Sept 19 Tue Sep 18, 2012 6:05pm EDT

PARIS, Sept 19 (Reuters) - French President Francois Hollande's Socialist-led government on Wednesday kickstarts ratification of a European Union budget discipline pact it grudgingly accepts as the next step out of the euro debt crisis.

Created in March by Hollande's predecessor Nicolas Sarkozy and 24 other EU leaders including Germany's Angela Merkel, the fiscal compact requires euro zone countries to slash their public deficits or face legal action and possibly fines.

Its entry into cabinet on Wednesday paves the way to likely approval by French parliament in coming weeks, despite noisy dissent within Hollande's left-leaning coalition and growing disenchantment with the European Union among a French public facing 13-year jobless highs and fearing worse to come.

"We don't like this pact, it is a Sarkozy legacy. Merkel insisted on it because France has been breaking stability pact rules since 2003," said Elisabeth Guigou, head of parliament's foreign affairs committee, said of existing EU budget rules.

"But you don't have to love a pact to ratify it. It's one part of a deal and just the first step," Guigou, one of the senior Socialists tasked with rallying the coalition behind the accord, told Reuters.

The pact is due to be submitted to the French parliament in early October. It should pass through easily if, as they have stated, some of the deputies in Sarkozy's conservative UMP party vote for it.

It will be the latest small step towards resolving Europe's sovereign debt crisis since Germany's constitutional court this month allowed a permanent bail-out fund to go ahead and pro-European parties came out ahead in a Dutch election.

But the passage of the bill will carry a political cost for Hollande at home and does nothing to forestall a looming clash with EU paymaster Germany over the deeper measures Berlin believes are needed for euro's longer-term survival.

Even if it does not change the outcome, a vote against the accord from some left-wingers and ecologists within Hollande's coalition will be a political embarrassment just as surveys show a steady decline in public support for him since his election in May.

To sweeten the pill - and to try to take the sting out of a series of street protests due against the pact - the government is putting it into parliament alongside the package of EU-wide growth measures he secured at his first EU summit last June.

Moreover France's top court has also said the new budget rules do not require any change to the constitution, meaning Hollande in turn can skip a referendum on it which he would not be certain of winning.

"The public is falling out of love with the European Union," French European Affairs Minister Bernard Cazeneuve conceded on Tuesday, a day after a survey showed that nearly two-thirds of French would now reject the 1992 Maastricht Treaty that led to the euro.

The EU budget pact enters into force either when 12 out of the 17 euro zone countries ratify it, or on January 1 next year. Half a dozen, including Germany, have already backed it.

To set an example of fiscal responsibility, Hollande has promised to find 30 billion euros ($39.17 billion) of savings in the 2013 budget to shave France's public deficit to three percent of gross domestic output next year en route to a fully balanced budget by the end of his five-year mandate.

Yet economists question how he can achieve such savings without dragging the economy into recession. Hollande acknowledged this month that growth next year was likely to be in the region of 0.8 percent, well below the official forecast of 1.2 percent.

The 2013 budget is due to be announced on Sept. 28. But there is potential for more upsets further down the line.

French officials warn they could not sell to a wary public the plans to draw up a new treaty for closer European integration which, according to German weekly Der Spiegel, Merkel is beginning to hatch.

"It would not be sensible to launch into talks on a new treaty before we have got out of the crisis. It will be possible when there is not this sense of a risk of the euro zone falling apart, when Greece and Italy are back on track," said Guigou.

"The big issue right now is ensuring that Europe does not slip into recession."

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