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«By David J. Howarth University of Edinburgh d.howarth ABSTRACT French policy-makers have been caught in a dilemma with regard to the ...»

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• A member state exceeding the 3 per cent threshold will obtain a delay of 3 years to bring its deficit down again. The objective remains to bring the deficit below the threshold within a year following the launch of the EDP but a government can obtain a delay of a year if there are particular circumstances that should be taken into consideration (notably slow economic growth). Before advancing to the sanctions procedure the Commission will prepare a report to determine whether a supplementary delay of a year should be allowed.

• Following the identification of an EDP by the Commission and the Council, a member state will have 6 months (not just the current 4) to propose corrective measures.

• As in the Commission’s recommendation, member states are to avoid pro-cyclical budgets in good times (when real growth is superior to potential growth) but there is to be no obligation for these member states to achieve a budget surplus.

• More effort will be demanded from member states with a relatively heavy debt burden which have not undertaken structural reforms.

• The mid-term objective of each member state will be determined with regard to two factors: 1) those member states with low debt levels and strong growth are allowed a medium term deficit of 1 per cent; 2) those member states with high debt levels and weak growth prospects will have to move to a deficit close to balance or in surplus (as is currently the case but this objective will be redefined every four years). Member states which have not yet attained their medium term objective will have to reduce their structural deficit – depending upon the level of economic growth – by 0.5 per

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The new spirit of the SP presented by the French Finance Minister Thierry Breton – ‘to help rather than to punish’ (Le Monde 22.3.2005) – the elimination of the elements of automaticity in the original pact and the introduction of considerable room for interpretation conform well to French intergovernmentalist preferences. They also reflect the ‘effective policy mix’ dimension in the French approach to economic governance. There is an obvious tension between greater flexibility allowed in the application of the SP and the potential effectiveness of its sanction mechanisms. There is also the potential for tension between this more flexible version of economic governance and EG as macroeconomic policy coordination. Under the new Pact, there is considerably greater scope for counterclaim in the event of non-compliance with existing rules, given that member states can justify their borrowing with reference to numerous factors. Furthermore, the increased uncertainty that surrounds the determination of acceptable medium term balances will make it even more difficult for Ecofin to trigger sanctions against errant member states.

2. Economic governance as interventionism The second version of EG that can be discerned in French government rhetoric and policy is more interventionist involving EU job creation strategies and infrastructure programmes. This could involve varying degrees of intervention in the context of the EU's employment and social chapters or in terms of EU sponsored investment. To the extent that intervention involves reflation and thus a direct challenge to the price stability goals of the ECB, this understanding of EG is likely to overlap to some extent with the fifth objective of economic governance explored below.

The French Socialists made this more interventionist version of economic governance a central element of their policy on EMU during the campaign prior to the June 1997 National Assembly elections. 8 They and their Plural Left coalition partners forwarded European economic governance as a means to promote growth and employment, goals which were ostensibly given equal weight to the 'growth and stability' goals in the Amsterdam Treaty due to Prime Minister Jospin's insistence on parallel resolutions. Rhetorically, the construction of EG was linked to the establishment of a 'euro-social': an EU level economic and monetary policy mix that would more aggressively counterbalance or even directly challenge the 'sound money' policies pursued by the ECB. The Plural Left Government called for collective EUlevel interventionism to include both joint spending on major infrastructural projects and a high-profile EU employment strategy, that Jospin forced through at the June 1997 Amsterdam European Council, to involve regular ‘Jobs Summits’. However, the Plural Left Government's preferences in this area were not met: the Employment Chapter of the Amsterdam Treaty, the Luxembourg and Cardiff Jobs Summits of November 1997 and March 1998, and the Cologne and Lisbon Summits of June 1999 and March 2000 established a non-binding 'soft' or 'open' form of coordination that fell far short of the kind of intervention sought by the French. 9 8 See Howarth (2002a & b); Pochet (1998).

9 The Employment Chapter itself involved no additional spending or obligatory measures and emphasised a vision of job creation closer to that advocated by Tony Blair’s New Labour — with an emphasis placed on training and the adaptability of the work force as contributing to a ‘flexible and competitive Europe’ — than the Plural Left vision of EU-level spending and intervention. The Luxembourg and Cardiff ‘job summits’ of November 1997 and March 1998, and the Cologne and Lisbon summits of June 1999 and March 2000 established and reinforced a programme of employment policy coordination: best practice information sharing, pilot projects and non-binding job creation targets. This coordination fell far short of the Jospin Government’s initial proposals for the Luxembourg summit that included the establishment of specific binding national plans for the creation of twelve million jobs throughout the EU over the next five years, the coordination and regulation of employment Nonetheless, EU employment policy served its legitimising purpose at the domestic political level and French Socialist ministers consistently stressed – if not exaggerated – the significance of developments in this area (Howarth 2002a/b). 10 The Jospin Government also made a deliberately symbolic gesture de-emphasising the stability element of economic governance and emphasising government margin of manoeuvre: France was the only aspiring participant of EMU to fail officially to respect the 3 per cent deficit figure for its 1997 budget — the 3.1 figure announced demonstrated French pique at German insistence that the deficit criterion be respected for participation in EMU. However, the overriding objective of starting EMU by 1999 – the design of which the Germans would not allow to be altered – demonstrated the hollowness of the Jospin Government’s rhetoric. Socialist-led governments have not been alone in advocating this more interventionist form of economic governance. In 2003, the Raffarin UMP Government joined with the German Chancellor Schröder to launch a Franco-German growth initiative of 18 September 2003 and attacked the Commission for being excessive in its drive for budget cutting and ‘anti-industry’, pledging further tax cuts in both countries and 10 major jointly funded infrastructural projects (Le Monde, 19.9.2003).

President Chirac has regularly called for EU-level and Franco-German projects which involve deficit spending to stimulate the economy and develop particular industrial sectors.

3. Economic Governance as credibility and legitimacy building EG has also been perceived and advocated as a means to improve the credibility of ECB monetary policy. This form of EG can link in with the price stability version of EG embodied by the Maastricht Treaty and SP rules by reinforcing the credibility of the ECB’s efforts to manage Euro-zone monetary policy. Crucially, this form of EG concerns communication – policy at the EU-level and even the necessary Commission approval on industrial redundancies and closures (‘Le Sommet de Tony Blair’, Le Monde, 23-24.11.1997).

10 See Martine Aubry’s comments in ‘Le Sommet de Tony Blair’, Le Monde (23-24.11.1997).

the coordination of different national government voices regarding ECB monetary policy and desirable economic policy. There has been a problem of many voices making different pronouncements on ECB policy making. This version of EG has involved the creation of a single political interlocutor of the ECB, which focuses on maintaining good relations with the central bank and contributes to the improved coordination of the international representation of the Euro-zone. Thus, the emphasis is upon the effective operation of the intergovernmental / political dimension of the Euro-zone. This version of EG is closely related to the fourth which has involved embedding the independent ECB in a political framework: to reinforce its democratic legitimacy and public accountability. This fourth version has provided a partial response to those who express concern for the problematic existence of a single currency without a single state. Despite their rhetorical and real emphasis placed upon reinforced coordination, in their search for margin of manoeuvre French governments have done much to undermine this form of economic governance.

Socialist Finance Minister Dominique Strauss Kahn succeeded in achieving a formal agreement on the creation of what he labelled the 'Euro-Council' (conseil de l'euro) in December 1997 which the Jospin Government widely presented as a manifestation of economic governance. This body was subsequently relabelled the Euro-X due to German opposition that the label Council incorrectly suggested that this new body had legal status.

This body became the Euro-XI following the determination of the number of member states participating in EMU and was subsequently officially relabelled the Eurogroup during the French Council presidency during the second half of 2000. Leading French officials also made the exaggerated claim that the creation of the new Economics and Financial Committee, the rebaptised Monetary Committee, helped to reinforce the control of the Euro-XI over the economic framework in which monetary policy was made, thus forwarding the construction of EU economic governance. 11 Emphasising the role of the Economic and Financial Committee was – as with the Eurogroup – important to the Jospin Government which sought to demonstrate and enhance the importance of intergovernmental decision-making in EMU as a counterbalance to supranational rules.

The French Council Presidency of the second half of 2000 had two specific goals with regard to the political dimension of the Euro-zone: improve the visibility of the then Euro-XI and improve economic policy coordination. Progress in both goals was limited during the French presidency but potentially significant. Regarding the first goal, the Jospin Government had failed in the French aim to give the Euro-XI a legal personality of its own. Thus all EuroXI agreements had still to be ratified by Ecofin. Also, Ecofin remained very much the most important body for coordination (including discussion of the Stability / Convergence Programmes and the BEPG which were also prepared by the ESCB members not participating in the Euro-zone and thus not attending the Euro-XI meetings). Nonetheless, the French scored a minor victory in convincing the Euro-zone governments to relabel the Euro-XI the Eurogroup. The French also succeeded in bringing an agreement to produce a clearer, published agenda for Eurogroup meetings, to have longer meetings, to discuss more current matters at them and to improve their communication output (notably through the organization of a press conference immediately after the Eurogroup meeting, prior to the Ecofin the 11 ‘On n'est plus très loin du gouvernement économique’, interview with Jean Lemierre in Libération, 13 January 1999. Jean Lemierre, former head of the French Treasury and the first president of the Economic and Financial Committee made such announcements to the French press upon the creation of the council at the start of 1999. However, the powers of the new Economic and Financial Committee did not reinforce those of the Euro-XI. Like the former Monetary Committee, this new body includes leading central bank officials and the Heads of national Treasuries. It incorporates the principal responsibilities of the former Monetary Committee, placing emphasis upon economic policy co-ordination (which explains the change in name). In June 1998, the Commission’s proposals to strengthen economic policy coordination in the context of the new Committee and the Euro-XI, were rejected by the member states. Like its predecessor, the new Economic and Financial Committee is the principal body in which detailed negotiations and decisions take place, leaving Ecofin to ratify the decisions or to negotiate and make decisions in those situations in which the treasury officials and bank governors are not able to reach agreement. See Puetter 2004.

following day). 12 With regard to Eurogroup-ECB relations, Laurent Fabius – unsuccessfully – sought the organisation of more frequent bilateral meetings between the presidents of the two bodies. The aim here was to improve the coordination of member state positions on ECB policy making and channel this through the Eurogroup to the ECB president. Fabius also blamed the weakness of the euro on the lack of strong political leadership in the Euro-zone, the absence of an EU equivalent to the American Secretary of the Treasury. 13 He raised the idea of a Mr. Euro – previously introduced by the French – to be held by an individual over a period of several years and responsible, in conjunction with the Council presidency, for the international representation of the Euro-zone (an economic policy equivalent to the Mr.

CFSP, the EU's foreign policy representative). With regard to the second goal of the French Council Presidency, there were no great strides towards tightened policy coordination.

Moreover, the development of a common communications strategy appeared to stall with different publicly expressed views on a range of Euro-zone related matters including the decline of the euro and attacks on Duisenberg's competence as ECB president (see Howarth and Loedel 2005).

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