Euro Area/debt crisis – European Stability Mechanism/ECB - Euro Area treaty – France/Germany/EU – France/UK/EU – France/economy/euro
Paris, December 13, 2011
EURO AREA/DEBT CRISIS
Q. – At the European People’s Party congress on Thursday, 8 December you said there had never been a higher risk of Europe exploding. In the wake of Thursday and Friday’s Brussels summit, has this risk been eliminated?
THE PRESIDENT – I wish I could say it’s been totally eliminated, but I’ll be careful not to. We did everything feasibly possible. In a perfect – unrealistic – world, we should do more, but a characteristic of statesmen is to work with facts. That said, this summit is a milestone towards European integration. As such, it creates the conditions for recovery and for emerging from the crisis.
The euro is Europe’s heart. If it explodes, Europe won’t withstand it. The crisis of confidence and credibility in the euro was therefore threatening the European Union’s long-term survival.
The truth is that, well into the crisis, we’ve had to compensate for the inadequacies of the euro when it was created. No provision was made for the convergence of euro member countries’ economic policies. Secondly, some countries were accepted into the Euro Area when they weren’t ready for it. This resulted in the whole system being undermined (…). Those countries have had to impose painful measures on their peoples, which they weren’t expecting. (…)
Q. – Does the Brussels agreement address these elements of the crisis?
THE PRESIDENT – It addresses them firstly through the creation of genuine economic governance. If the Euro Area economies don’t converge, they can’t keep the same currency indefinitely. The fact that responsibility for governance now falls to heads of state and government is indisputable democratic progress compared to what used to happen, with everything organized around the European Central Bank, the Commission and the Stability Pact.
I might add that, for the Commission, things will now be clearer. It’s responsible for making sure treaties are adhered to and penalties applied. (…)
The issue at stake is that of our continent’s competitiveness and the conditions of a growth which absolutely has to be more sustained. So we’ll have to talk to our Euro Area partners about the crucial issues of industry, trade policy, the labour market, research…
Q. – And, conversely, they’ll talk to you about taxation, public employees and pensions in France?
THE PRESIDENT – Of course. The EU is based on mutual compromise, built in everyone’s interest.
Q. – Is it about transferring sovereignty?
THE PRESIDENT – No, because our economic sovereignty won’t be delegated to others. It will be a shared exercise of sovereignty by democratically elected governments. You reinforce your sovereignty and independence by exercising it with your friends, allies and partners.
Let me add that not a single new area of competence will be transferred to any supranational authority.
EUROPEAN STABILITY MECHANISM/ECB
The second point is about increasing European solidarity, with the creation of a genuine European monetary fund, the European Stability Mechanism (ESM). It’s a fund designed to help Euro Area member countries who may not have adequate access to the market in order to finance their debts. This fund will be set up from July 2012, not July 2013. Its decisions will no longer be taken by unanimous voting but by an 85% qualified majority. This will prevent a small minority from blocking the others if they wish to forge ahead.
The fund will have €80 billion in capital, a lending capacity of €500 billion. In March, we’ll look at whether this is enough. And in the next 10 days we’ve pledged to negotiate with our non-European partners an increase in International Monetary Fund resources, which will give us more punch in the event of a crisis. The Euro Area is ready to provide up to an extra €200 billion. Never have we been so ambitious in terms of solidarity.
Finally, the ECB will run the European fund, thus enhancing the latter’s credibility and effectiveness. (…)
Q. – The ECB is going to lower its rates to 1% over three years so that the banks can regain their margins and buy government debts. Is that moral, when it would be simpler for the ECB to lend directly to states?
THE PRESIDENT – I don’t comment on the ECB’s action. It’s independent and must act in the framework of the treaties.
But the problem today in many countries in the Euro Area is the credit crunch resulting from a fear of risk. This could lead to an economic depression – a prospect that would be disastrous. I’m delighted the ECB is providing liquidity to prevent this credit crunch. Think of those thousands of companies whose activity would be dramatically curbed if they didn’t have access to sufficient credit.
I hope the ECB’s action in supporting economic growth will also help calm the unfounded fears about government debts. I have confidence in the ECB to decide on the strength of its intervention in future.
Q. – If that doesn’t work, do you envisage a big loan from individuals, as in Belgium and Italy?
THE PRESIDENT – (…) We have to remember that, despite the crisis, France today borrows on the markets at a historically low rate. So why should we change our strategy?
The third element of the agreement is an effort of discipline, with a reverse majority for automatic sanctions. Previously, for the Commission to penalize a state that was at fault, a qualified majority was required at the Council for approval. That will now no longer be the case.
On the other hand, we didn’t want those penalties to be applied in the same way – that is, to be automatic – in the event of the debt straying off track in one given year. A state may be led to recapitalize a bank, or a public company, which will increase its public debt. You can’t hold that against it. (…)
EURO AREA TREATY
Q. – What’s the next phase?
THE PRESIDENT – In the next fortnight, we’ll finalize the legal content of our agreement. The aim is to arrive at a treaty for March.
You really must see that another Europe is being born: that of the Euro Area, where the keywords will be convergence of the economies, budgetary rules and taxation – a Europe where we’re going to work together on reforms enabling all our countries to be more competitive without giving up our social model. That’s the price of our continent’s stability.
Q. – Aren’t you afraid of the ratification problems?
THE PRESIDENT – No, because the procedure chosen is lighter, even though each country remains in control of the ratification procedure. In any case, we hope to be ready in the summer of 2012. (…)
Q. – That makes six months when the markets can still attack…
THE PRESIDENT – If you’re trying to tell me it’s difficult, I’ll confirm it to you: it is difficult. None of the ideological frames of reference work any more. You need a lot of calm in order not to overreact, and the same calm in order not to underreact. I’m conscious of the risk of not being understood by people who are suffering and who see a succession of summits that seem disconnected from their daily lives.
At the same time, we don’t have a choice. We must keep as firm a hold of the helm as possible and get out of the spiral of crises.
Q. – How do you answer those who say the decisions taken to halt the euro crisis are being imposed by Angela Merkel?
THE PRESIDENT – I’d ask those who complain and criticize me for the Franco-German axis what they propose as an alternative strategy. Remaining alone? Who really thinks France would have got her ideas across better on her own? Unless we suggest another alliance… But what?
It’s true the Brussels summit was the result of a Franco-German compromise, and since the beginning of this crisis we’ve moved closer to each other. Who would have thought, two years ago, that our partners would come round to the idea of an economic government organized around the heads of state and government? That they would subscribe to the creation of a European monetary fund, embodied by the ESM? All French ideas! The Chancellor, whom I think very highly of, acted pragmatically and intelligently. (…)
Q. – A triangle with the British?
THE PRESIDENT – The UK isn’t in the euro. A Berlin-Paris-London trio would have made sense if we’d had a crisis of the European Union as such, but that’s not the case. It’s a crisis of the euro.
Does the importance of the understanding with Germany mean we can’t do anything with London? No. We intervened in Libya with the UK, and Prime Minister David Cameron was brave. We share with London a commitment to nuclear energy and strong cooperation on defence, which is essential. (…)
Q. – In Brussels last week, you banished the British from Europe.
THE PRESIDENT – That’s not how I saw it. We – the Chancellor and I – did everything to ensure the British would be a party to the agreement. But there are now clearly two Europes: one that wants more solidarity between its members and more regulation, and the other that is committed only to the single market approach.
Q. – How did they [the British] find themselves on their own?
THE PRESIDENT – The repeated assertion that they oppose any prospect of joining the euro can’t fail to have consequences. Let me add that the demands about financial services weren’t acceptable. The crisis arose from the deregulation of finance. We could never agree to a backward step. Europe must move towards more regulation.
Q. – Is it legitimate, from now on, for the United Kingdom to remain in the single market?
THE PRESIDENT – We need Britain! For her to leave would greatly impoverish us, and very fortunately it’s not on the cards. (…)
Q. – Is the French President ready to accept the European rules, when you went to Luxembourg in 2007 to ask for a delay in France’s return to equilibrium, and when Prime Minister François Fillon recently protested against the Commission’s growth forecasts?
THE PRESIDENT – We’re not talking about the same era or the same world, even though it’s the same president. We’re all the more ready for this effort, which we began in 2007. We were criticized for implementing the policy of not replacing one civil servant in two when they retire; that was in 2007. The reform of the “judicial map” [location and jurisdiction of French courts] was in 2008. The reform of the military map [location of French military bases] was in 2009. As for the pensions reform, if we hadn’t introduced it we would be in the unenviable position some of our partners are in.
Q. – What’s your assessment of the risk of France being downgraded by the ratings agencies?
THE PRESIDENT – One of the three ratings agencies gave France, as well as the whole Euro Area, a negative outlook. Why? Because the Euro Area is experiencing a problem of governance: it’s a problem we’re dealing with and which isn’t peculiar to France. The second worry is the risk to French banks. Good news: the European Banking Authority believes French banks need €7.7 billion in recapitalization, as opposed to €13 billion for Germany. So not a cent of the state budget will go into recapitalizing the banks.
Third point: French growth prospects. The government has forecast 1% for 2012. But at the same time €6 billion in appropriations has been frozen, in order to cope in the event of growth being limited to 0.5%. Final point highlighted by the agency: our high level of spending. But everyone acknowledges we’ve shown in the past that we can act quickly on this.
So the big risk is contagion from the European crisis. That’s why we are fighting to control it.
Q. – Do we risk 10 years of effort or very slow growth, as in Japan?
THE PRESIDENT – That’s a risk that led me not to choose a policy based on austerity. Austerity means reducing salaries and retirement pensions. I refuse, and will refuse, to do that. If we went in that direction, it would plunge France into a recession and deflation. If you reduce your revenues at the same time as cutting your spending, you won’t resolve your deficit problems. That’s why in 2009 we decided on €35 billion for future investments. It’s the opposite of a policy of belt-tightening and austerity. We must reduce both our deficit and our debt, free up work and restore competitivess.
Q. – But the agencies aren’t doing us justice.
THE PRESIDENT – For the time being, they’ve maintained the Triple-A rating. If they were to withdraw it from us, we’d face the situation coolly and calmly. It would be an extra difficulty, but not insurmountable. What counts above all is the credibility of our economic policy and our determined strategy of reducing our spending. We’ll comply strictly with the commitments we’ve made. (…)
Q. – And the golden rule?
THE PRESIDENT – The golden rule is an important measure. It’s a common-sense rule: budgets must be built to cover several years, with the aim of moving towards balance. Who can dispute that aim, in good faith? (…)
Q. – What’s your analysis of French people’s growing doubt about the euro?
THE PRESIDENT – The French associate the euro with their difficulties, but at the same time they understand the risks that leaving it and isolating themselves would entail. I welcome their clear-sightedness.
The French aren’t challenging Europe, but rather the way certain European policies are conducted. In this respect, trade policy is a perfect example of what should be changed. You increase the burdens and constraints on our producers, and you let products manufactured in countries that respect none of those constraints enter our market. That can’t go on any longer. Reciprocity must become the rule. Competition can only be fair; if it’s unfair, we must act accordingly in relation to the openness of our markets. (…)./.