Bloomberg News

ECB Becomes French Campaign Issue

April 16, 2012

French Socialist presidential candidate Francois Hollande speaks during a Socialist Party rally in Vincennes. Photographer: Antoine Antoniol/Getty Images

French Socialist presidential candidate Francois Hollande speaks during a Socialist Party rally in Vincennes. Photographer: Antoine Antoniol/Getty Images

The European Central Bank could have prevented the euro region’s debt crisis had it “massively” bought Greek bonds at the outset, French Socialist presidential candidate Francois Hollande said.

The Frankfurt-based central bank has become a target in the final days of the French campaign. Hollande’s remarks followed President Nicolas Sarkozy’s call yesterday to debate expanding the ECB’s mandate to include spurring growth and not just controlling inflation.

“He’s been in office for five years, which is a long time for him to have just noticed that,” Hollande said today in an interview on France Info radio. “We wouldn’t be in such a mess if the European Central Bank very early on had massively bought sovereign bonds.”

Sarkozy had made extending the role of the ECB, in effect giving it a mandate similar to the U.S.’s Federal Reserve, an issue in his successful 2007 campaign. From the start of the euro crisis, he pushed for greater action from the ECB, clashing with German Chancellor Angela Merkel, before the two of them agreed at a December European summit to refrain from comments that could infringe on the bank’s independence.

France holds the first round of its presidential elections on April 22 with the runoff on May 6. Hollande would win a head- to-head race by 56 percent to 44 percent, according to a TNS Sofres survey on April 13.

Raised Eyebrows

“Many politicians in Paris see the combination of weak euro and accommodative monetary policy as key to get out of the European crisis,” Thomas Costerg, an economist at Standard Chartered Bank in London, said in an e-mailed note. “The fact that Sarkozy now blows in the same direction as Hollande will probably raise some eyebrows in Germany, especially from his ally Angela Merkel.”

Jean-Francois Cope, head of Sarkozy’s political party, said today in Paris that the ECB “was a subject we can’t not raise with voters.”

Germany’s stance on supporting ECB independence is unchanged and well known, including in Paris, Merkel’s chief spokesman, Steffen Seibert, told reporters in Berlin today.

“We see the necessity -- just as the French government does -- for sustainable economic growth in Europe and have undertaken with it a number of measures that address growth and employment,” Seibert said. “In our aims, we are one with the French government.” He declined to comment on the election.

Rule Change

Hollande suggested the ECB’s rules should be changed to allow it to purchase sovereign bonds at their issue, instead of just buying on secondary markets. “It would be much simpler if the central bank could just directly fund the debt of European countries,” he said in the radio interview. That step is now barred by the Maastricht Treaty, which established the euro.

“There is not much France can change,” Costerg said. “First, it is unlikely that Germany will accept the proposal. Then, the ECB’s mandate is governed by a European treaty, which is almost set in stone and near-impossible to amend.”

The ECB has resisted taking any measures that it sees as direct financing of governments. It has bought 214 billion euros ($279 billion) of debt in the secondary market and channeled 1 trillion euros into the banking system in a pair of auctions of unlimited three-year loans.

The French presidential candidates weren’t the first to revive talk of the ECB taking stronger steps as the yield on 10- year Spanish bonds rose more than a percentage point in the past month. ECB Executive Board member Benoit Coeure April 11 said that the higher yields weren’t justified.

“Will the ECB intervene?” Coeure said at an event in Paris. “We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.”

And in an April 13 interview, Jaime Garcia-Legaz, a deputy minister in Spain’s Economy Ministry, said “they should step up purchases of bonds” when asked about the ECB.

To contact the reporter on this story: Gregory Viscusi in Paris at

To contact the editor responsible for this story: James Hertling at

Toyota's Hydrogen Man
blog comments powered by Disqus