* Hollande says France still matters in EU
* Diplomats, ministers say Paris absent on key issues
* Economy, domestic politics sap French influence
By Paul Taylor and Ingrid Melander
PARIS, June 13 It's not a good sign when the
leader of a G7 nation feels the need to state his country still
That is precisely what French President Francois Hollande
did at a meeting of European Union leaders last month after his
Socialist party's humiliating defeat by the hard right National
Front in European Parliament elections.
"France is not weakened ... It's a great country. It's the
country that matters in Europe together with Germany," Hollande,
the most unpopular French leader since opinion polling began,
An array of diplomats and officials involved in EU
policymaking told Reuters France's influence, sapped by its
persistent economic problems, has been hit further by the
election, in which the Socialists came a distant third behind
Marine Le Pen's far-right and the opposition conservatives.
"Hollande is a devalued currency," a former European affairs
minister from one member state said. "If we need something, we
go to the Germans. Before, we used to go to the French as a way
of bringing the Germans around. Now France is mostly absent."
Paris was at the forefront of European integration from the
creation of the European coal and steel community in the early
1950s to the establishment of a single currency in the 1990s as
an ally and counterweight to Berlin.
But its clout has diminished in the last decade due to the
bloc's eastward enlargement, the French rejection of a proposed
EU constitution in a 2005 referendum and the country's economic
stagnation and loss of competitiveness compared to Germany.
Since his election in 2012, Hollande has repeatedly said he
wants to "reorient" the 28-nation union away from fiscal
austerity to focus on promoting growth and employment.
Foreign Minister Laurent Fabius said this week that Paris
was preparing proposals for when EU leaders meet later this
month to set the bloc's priorities for the next five years.
Yet diplomats say it is Berlin and Rome that are most likely
to shape any new policy bargain, since German Chancellor Angela
Merkel's conservatives and Italian Prime Minister Matteo Renzi's
centre-left were the big winners of the European elections.
Renzi, like Hollande, wants a greater focus on growth, but
he is committed to a programme of economic and political reforms
that seems more ambitious than the French plan, and he intends
"People are looking to Renzi now in the way they looked
briefly to Hollande in 2012 to stand up to Merkel," the former
Europe minister said, speaking on condition of anonymity.
France has narrowed its public deficit and remains an
important military power with a permanent seat on the U.N.
Security Council. Its borrowing costs are very close to record
lows because bond markets assume French debt has an implicit
But EU officials and diplomats say its status as a repeat
offender against EU fiscal rules, its big trade deficit and
reticence to open up its economy to more competition put it high
on their worry list.
The European Commission expects France to miss its target of
bringing the deficit down to 3 percent of GDP next year unless
it changes course. But measures recommended by Brussels to ease
hiring and firing rules, prune a generous welfare state and curb
pension and health costs seem improbable given Hollande's
dwindling political standing.
While unemployment is stubbornly high at over 10 percent,
Hollande faces resistance from the left and trade unions to his
plans to rein in public spending and ease the tax burden on
France irked Berlin when new Prime Minister Manuel Valls led
a campaign urging the European Central Bank to weaken the euro
to help revive the European economy. Germany staunchly defends
the ECB's independence.
Outspoken Economy Minister Arnaud Montebourg misses no
opportunity to attack the Commission over the way it applies EU
competition rules limiting government aid to business and state
intervention to promote national industrial champions.
European officials say they need a strong France alongside
Germany to drive Europe forward.
"The situation in France is a cause for worry, on the
economic front and, following the EU elections, on the political
front," said Anne Houtman, the European Commission's
representative in Paris.
"France can be a driving force for the EU but member states
are also well aware that if France sinks, there is a risk for
the whole euro zone. No one has any interest in weakening it.
Everybody, including Germany, wants it to get stronger."
Even some French officials acknowledge a weakening of Paris'
involvement in the EU power game.
A presidential aide said Paris was staying out of the
current battle over who should head the executive European
Commission over the next five years, succeeding Jose Manuel
Barroso in the most powerful EU position.
"We are not involved in that fight. We'll leave the Germans
and the British to sort that out among themselves," the adviser
In the past, such key appointments were nearly always the
result of Franco-German deals.
Likewise, France played a backseat role in last year's
battle over the EU's seven-year budget plan, once it had secured
its own agricultural interests, leaving Merkel and British Prime
Minister David Cameron to force a reduction in spending.
Hollande responds to France's critics by saying that the
2-trillion-euro economy is still the euro zone's second biggest
and French officials point to Paris' role in shaping responses
the euro zone crisis including rules to deal with failing banks.
"If Greece did not leave the euro zone it's thanks to us," a
French diplomat said, hinting that Hollande had worked behind
the scenes to convince Merkel of perils of a "Grexit".
France had also been a driving force behind a European
banking union despite German opposition to any mutualisation of
liabilities for failing institutions, he said.
But he acknowledged: "On some issues, our economic situation
does diminish our influence."
Other EU diplomats involved in the crisis talks say while
France did indeed play a role, it did not tilt the balance.
"Yes, France did push in the direction of a closer banking
union," one said. "But look at the result, Germany got it
Another Brussels diplomat said: "France's role in Europe has
considerably weakened over the past few years ... It continues
to lecture others and try to sell its economic model but it's
getting harder and harder to do so."
That is partly because the state-driven French approach to
economic development is at odds with the dominant free-market
orientation of the EU, even in countries governed by the
But a French official involved in European policy said it
was also due to the president's emollient style - a stark
contrast with his conservative predecessor, Nicolas Sarkozy, who
irritated many EU partners but at least ensured France got
"Hollande was always weak in the European Council (summits).
He doesn't like conflict," the official said.
"He was always accompanying compromises, not making them. He
never gave the impression he would be willing to block a big
decision, contrary to Merkel and Cameron."
(Editing by Mike Peacock)