France gives initial green light to EU fiscal pact

PARIS Wed Sep 19, 2012 7:20am EDT

France's President Francois Hollande delivers the inaugural speech of an annual environmental conference in Paris September 14, 2012. REUTERS/Jacky Naegelen

France's President Francois Hollande delivers the inaugural speech of an annual environmental conference in Paris September 14, 2012.

Credit: Reuters/Jacky Naegelen

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

Prime Minister Jean-Marc Ayrault's cabinet gave initial approval to the fiscal compact agreed in March by Hollande's predecessor Nicolas Sarkozy and 24 other European leaders, which requires euro zone countries to slash their public deficits or face sanctions such as fines.

The cabinet's green light paves the way for official parliamentary ratification next month, despite noisy dissent within Hollande's left-leaning coalition and growing public disenchantment with the European Union. With unemployment running at a 13-year high, French voters are hostile to the prospect of further prescribed austerity.

Acknowledging the reservations of many left-wing legislators, Ayrault appealed to the Socialists and their parliamentary allies to back the bill and save the government the embarrassment of relying on Sarkozy's conservative UMP party.

"There are still waverers and those who are hostile ... My objective, and the government's, is to convince the highest number possible," Ayrault told a news conference.

"Parliament's approval, which I hope will be massive, will give even more force to the president's voice in European negotiations."

To sweeten the pill - and to try to take the sting out of a series of planned street protests against the pact - the government will present a bill to parliament on October 2 alongside a package of EU-wide growth measures secured by Hollande at his first EU summit in June.

Nonetheless, some Socialists are likely to break ranks over a bill seen as a reminder of Sarkozy's close links with German Chancellor Angela Merkel and his support for Berlin's demands for austerity in Europe.

"We don't like this pact, it is a Sarkozy legacy," said Elisabeth Guigou, head of parliament's foreign affairs committee and one of the senior Socialists tasked with rallying the coalition behind the accord. "But you don't have to love a pact to ratify it. It's one part of a deal and just the first step."

POLITICAL COST

The pact is seen as the latest small step towards resolving Europe's sovereign debt crisis after Germany's constitutional court this month gave the go-ahead to a permanent bail-out fund and pro-European parties came out top 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 by some left-wingers and ecologists within Hollande's coalition will be a political embarrassment just as surveys show a steady decline in support for him since his election in May.

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

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

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 3 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. The 2013 budget is due to be unveiled on September 28.

There is also potential for more upsets further down the line, with French officials already warning they may struggle to sell German plans for much closer European integration to an austerity-fatigued French public.

"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."

(Additional reporting by Catherine Bremer, Emmanuel Jarry, Yves Clarisse, Marc Joanny; Writing by Mark John and Daniel Flynn; Editing by Catherine Evans)

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