UPDATE 2-France's Hollande urges euro zone growth effort

Wed Oct 17, 2012 6:43pm EDT

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PARIS Oct 17 (Reuters) - French President Francois Hollande appealed on Wednesday for more efforts to boost growth across the euro zone, warning ahead of a European Union summit that recession was as big a threat as budget deficits.

Hollande told the daily Le Monde that troubled euro zone states should have the leeway to stimulate internal demand with salary rises and tax cuts, adding that a longer-term goal must be to reduce the big differences in borrowing costs in the bloc.

"If we don't breathe some life into Europe's economy, budget discipline measures won't work," Hollande was quoted as saying ahead of a two-day Brussels summit due to discuss plans for stabilising the bloc's debt troubles.

Hollande has challenged Germany's focus on strict austerity measures since he came to power in May. The International Monetary Fund weighed in this month, saying Greece, Portugal and Spain should be given more time to cut their public deficits.

France's Socialist leader also wants the euro zone to move towards mutualised debt at a later stage in the form of jointly issued euro bonds - something Germany opposes at least until budget stragglers can get their public finances into shape.

"The goal, too, is to harmonise interest rates in the euro zone," Hollande said, noting it was unsustainable to have some states borrowing at 1 percent interest and others at 7 percent.

"Budgetary union must be completed with a partial mutualisation of debt, through euro bonds," he said.

In the same inteview with Britain's Guardian newspaper, Hollande said he would like to see Britain "fully engaged" in Europe, but added that he could not influence its future.

"I see that for the moment they want to be more in retreat. The British are tied by the accords they have signed up to. They can't detach from them. At least they have the merit of clarity. They aren't in the euro zone or budgetary union. I don't intend to force them," he is quoted as saying.

British Prime Minister David Cameron, facing a restive "eurosceptic" element within his Conservative Party, is in favour of a referendum on whether Britain should agree a fresh settlement with the 27-member bloc.

"Certain countries don't want to join [the euro zone]: that's their choice. But why should they come telling us how the euro zone should be run? It's a pretension I hear but that I don't think meets the need for coherence," Hollande told the Guardian.

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