Global Economics

Sarkozy Ruffles Euro Zone Feathers


France's President tries to sell foreign critics on his economic plans, which will likely delay commitment to a balanced budget

French president Nicolas Sarkozy is to press ahead with the "fiscal shock" plans for his country despite strong reservations from several other eurozone countries.

In an unusual move, the energetic new leader invited himself to a meeting of euro finance ministers last night (9 July) to personally sell his plans for the French economy, amid mounting criticism over the past weeks.

The heated meeting, which saw Germany among the countries opposed to his tax-cutting measures, resulted in Mr Sarkozy presenting a softer line on his plans but not abandoning them.

At a press conference after the meeting, the French president called for an "intelligent and dynamic application" of the stability and growth pact, the rules underpinning the euro.

Referring to his plans to postpone balancing the country's books from 2010 to 2012 - he said he is not asking for the euro rules to be bent specifically for France.

"I'm not asking for a delay," he said. "I believe in the pact and the necessity of the pact and obviously I want to operate in the rationale of the pact."

Euro ministers made the 2010 commitment in April. But France reversed the decision suggesting it would be two years late to make good on its promise when Mr Sarkozy came to power.

The move has caused deep concern among some other eurozone countries -- particularly Germany which is now in the process of tightening its fiscal belt - who fear it undermines the stability pact and may cause other countries to follow suit.

But Mr Sarkozy remained adamant at the meeting that France has to follow this path - which includes tax-cuts running to billions of euro and is set to result in a much greater budget deficit than the 1.8% promised by the previous administration -- in order to kick-start the economy and create jobs.

"We will deploy every effort to achieve [a budget balance] but at the same time we have to be honest about it ... if we don't do that, we will ask for it to be moved to 2012," said the French leader.

Brave face

The head of the 13-nation eurozone, Luxembourg leader Jean-Claude Juncker, put a brave face on the meeting.

He said he was "happy to see France is entering into a phase of deep reform," adding that Mr Sarkozy had promised him that France will remain "deeply anchored in a philosophy of budgetary consolidation."

But there is no denying the extent to which Mr Sarkozy has unsettled the eurozone waters both with his economic plans and remarks about monetary policy, indicating he favours curbing the independence of the European Central Bank (ECB).

Mr Sarkozy admitted that there are difficulties between himself and ECB chief, and fellow French man, Jean-Claude Trichet.

"We don't exactly see eye to eye but I place every trust in his great ability to listen, understand and adjust," he said at the Monday press conference.

On this issue he also has a formidable opponent in Germany. Berlin has indicated on several occasions that it is deeply opposed to undermining the bank's independence.

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