Hollande and Growth: The French President’s Moment of Truth

Published on Spiegel Online International, by Carsten Volkery in London, May 23, 2012.

… What exactly does François Hollande want? It is a question that many in capitals across Europe have been asking since the Socialist was elected to replace Nicolas Sarkozy as French president earlier this month.

Hollande has spoken often of the need to adjust Europe’s current focus away from austerity and toward economic growth, a sentiment shared by many, including US President Barack Obama, British Prime Minister David Cameron and even the Social Democrats in Germany … // 

… Room for Disappointment:

Hollande, for his part, is likely uninterested in making a foray into the euro-bond jungle at his very first high-level European Union meeting. As such, most expect him to focus on his growth message on Wednesday evening.

But here too, there is room for disappointment, particularly given the unlikelihood that EU leaders will present any genuinely new proposals for growth stimulus. Van Rompuy’s invitation suggested that they will simply dust off previous Commission ideas, such as the following measures:

  • 1. Growth stimulus: There is some €80 billion in unused funding in the European Union’s Structural Funds, which provide money to regions in Europe to improve infrastructure and boost their economies. In January, EU leaders agreed to use this money to promote economic growth.
  • 2. Investment stimulus: European Investment Bank capital is to be increased, with the German government already having given up its original resistance to the plan. Currently, a boost of €10 billion is under discussion, but in remains unclear how many of the countries involved would finance their portion of the increase.
  • 3. Project bonds: The European Commission is to be granted the ability to issue project bonds for the first time — essentially loans and guarantees designed to support private investors on infrastructure projects. Funding comes from the European Union budget and thus has little to do with the idea of euro bonds. Some €230 million has been committed to a pilot phase, which is to trigger up to €4.6 billion in investment by 2014. Berlin has already signalled its approval of the idea.
  • 4. Structural reform: Merkel believes that labor market reforms coupled with liberalization and simplification of laws throughout the EU would provide the greatest economic stimulus. It is on this point that Hollande will have to justify his promise to sink the French retirement age from 62 to 60.
  • 5. Battle against youth unemployment: Given the extremely high rates of youth unemployment in Europe, as high as 50 percent for people under 24 in some countries, the European Commission is seeking to redouble cross-border job placement efforts.
  • 6. Financial transaction tax: Such a tax is as taboo for Great Britain as euro bonds are for Germany. Hollande will, like Sarkozy before him, experience significant resistance.

Yet even taken together, such measures are no more than a drop in the ocean. It could be that Hollande has a few more ideas up his sleeve, but even the new French president doesn’t appear to be thinking in terms of the gigantic stimulus packages pushed through during the 2009 financial crisis. Following discussions in the US, Merkel said that leaders had reached a consensus that there would be no debt-financed stimulus programs … (full text).

Links:

Video: Angela Merkel and François Hollande focus on growth in Greece, 1.16 min;

The Steering Wheel is Stuck: Why America is Doomed to One Disaster After Another, on Counter Punch, by GABRIEL KOLKO, MAY 14, 2012.

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