April 17, 2012 / 8:06 AM / 5 years ago

UPDATE 2-France's Sarkozy defiant on ECB role as vote looms

* Flagging Sarkozy sticks to guns on call for ECB growth role

* Presidential rivals battle to be seen as best on economy

* Analysts fret over public finance plans of both candidates

By Emmanuel Jarry and Catherine Bremer

PARIS, April 17 (Reuters) - France's Nicolas Sarkozy stepped up his demand on Tuesday to give the European Central Bank a bigger role in driving growth, despite a German rebuff, in a quest to convince voters five days from an election that he is the best defender of the economy.

Sarkozy raised hackles in Berlin by declaring at a weekend campaign rally that he wanted a debate on having the ECB direct its exchange rate policy to propel growth, breaching a November agreement not to publicly discuss the bank's role.

The conservative president, who is losing momentum in opinion polls, told France Inter radio that giving the ECB a pro-growth role would not require modifying European treaties or throw the bank's independence into question.

"It is not possible that the ECB does not participate in suporting growth, like all the central banks in the world," Sarkozy said, citing China's use of the yuan exchange rate to boost its export-led economic output.

"It is wrong to say that just because the ECB is independent, we do not have the right to talk."

Sarkozy is locked in a battle, primarily over the economy, with Socialist Francois Hollande, who has a double-digit lead in opinion polls for a May 6 runoff that will follow next Sunday's first-round vote between 10 candidates.

An Ipsos opinion poll published late on Monday put Hollande and Sarkozy neck and neck on 27 percent each in the first round, ahead of far-right leader Marine Le Pen with 15.5 percent, hard leftist Jean-Luc Melenchon with 14.5 percent and centrist Francois Bayrou with 10 percent.

A separate Ifop poll also showed Sarkozy losing ground and gave Hollande a one-point first round lead.

Both polls showed Hollande sweeping the May 6 runoff. Ipsos gave the Socialist 56 percent, up one point from a week earlier and 12 points ahead of Sarkozy at 44 percent, a decline of one point. Ifop gave Hollande 55 percent to Sarkozy's 45 percent.

The two rivals have sparred furiously over the economy, with Sarkozy warning that a Socialist victory could scare investors and Hollande saying any darkening of France's credit outlook would reflect Sarkozy's record, not his own arrival in office.

While financial analysts are most concerned about Hollande's spending plans, a study by the conservative-leaning think-tank Institut Montaigne published in business daily Les Echos on Tuesday found Sarkozy had over-estimated his own savings plan by 20 percent, leaving a fifth of his programme unfunded.


Sarkozy's reopening of the ECB's role came nearly three months after Hollande called in his election manifesto for the central bank's mandate to be widened to promoting growth and employment as well as price stability.

The Socialist also wants a renegotiation of Europe's newly agreed budget discipline pact to add pro-growth clauses.

Berlin steadfastly opposes any extension of the ECB's mission and sees capping inflation as the best way to promote growth, as that keeps down medium and long-term interest rates.

Sarkozy said he was not trying to change the bank's mandate, which is limited to maintaining price stability, unlike the U.S. Federal Reserve, which has a double mandate to ensure moderate inflation and also sustain employment.

In a system of freely floating currencies, the central bank can only infuence exchange rates via its interest rate policy and through the money supply.

Pressing for a cheaper euro to boost French exports of aircraft, luxury goods and cereals is popular with voters, and Sarkozy took a similar stance in his 2007 election campaign without ever following through on it.

On Tuesday, Sarkozy welcomed a recent dip in the euro-dollar rate, saying: "Each time the euro loses a centime (against the dollar), it's one billion extra in competitiveness for Airbus."

The need to bolster France's competitiveness in a low-cost world and turn around an industrial decline has been a key theme of the election debate.

On Monday, Sarkozy announced the latest in a string of industrial rescues during his campaign, a corporate takeover with some state investment and a guaranteed order book for a bankrupt auto parts maker in western France.

Hollande is promising higher taxes on the wealthy as a way to redress public finances, notably a 75 percent tax rate on income above 1 million euros.

On Tuesday he said the idea of a higher value-added tax rate on luxury goods made sense, though it is not in his manifesto. That could help balance his plan to cancel an upcoming rise in the main VAT rate to 21.2 percent from 19.6 percent from October, a measure Sarkozy has enacted to enable cuts in social charges for companies.

"What I don't know yet is whether it's possible to create another, higher VAT rate," Hollande said. "I will carry out a study to see whether this is possible under European rules."

Sarkozy and Hollande staged competing outdoor rallies in Paris on Sunday and will hold final meetings across the country this week before probably meeting in a face-to-face televised debate between the two voting rounds.

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