«By David J. Howarth University of Edinburgh d.howarth ABSTRACT French policy-makers have been caught in a dilemma with regard to the ...»
While breaking the Pact’s rules and agreeing to suspend the EDP, the Raffarin Government nonetheless continued its efforts to reinforce the Eurogroup as the principal intergovernmental forum for Euro-zone coordination. With EU enlargement, the French see the Eurogroup as assuming even greater importance as an informal forum for discussion to counterbalance the potential dilution of French influence in the context of Ecofin meetings.
The Franco-German proposal on the reinforcement of the Eurogroup to the EU Convention met with the objection of the euro-outsiders. The French sought to enable Ecofin to meet in a 12 This was very significant because it gave the Eurogroup the opportunity to make policy announcements prior to their confirmation by all EU finance ministers in Ecofin.
13 Fabius, L., 'Donner plus de visibilité à l'euro 11 sera un axe fort de la présidence française';
Zecchini, L. and Lemaitre, P.H., 'La France veut renforcer le pouvoir du club de l'euro', Le Monde, 4.7.2001.
forum consisting of only the ministers of finance of the Euro-zone member states, thus enabling them to make legally binding decisions without the approval of the Euro-outsiders.
These proposals were not included in the Draft Treaty (2003) – not only because of the objections of the Euro-outsiders but also because of the problematic precedent that it would set for the organisation of other councils of ministers – and the French have had to content themselves with the limited reinforcement of the Eurogroup including the creation of a Mr.
Euro who was to chair meetings for two years and provide a political face to the Euro-zone (Convention Working Group on Economic Government, Report 2002; Draft Treaty Establishing a Constitution for Europe 2003). Even without Treaty ratification, at the start of 2004, the Luxembourg Prime Minister and Finance Minister, Jean-Claude Junker, was appointed as the first two-year head of the Euro-group.
4. Economic Governance an explicit challenge to the ECB's goals and goal-setting and operational independence Finally, French politicians have challenged explicitly both the goals and independence of the ECB. There are four roots to French opposition to central bank independence required by the German imposed design for EMU (Howarth 2001): the French republican tradition; the belief that control over economic and monetary policy should not be separated; the perception — rooted in the history of French political economy — that low inflationary economic policies can be maintained by democratically elected officials, guided by enlightened bureaucrats and advisers (notably those from the French Treasury and, in particular, the elite corps of Financial Inspectors); and power considerations within the French administration. None of the leading French political parties supported the concept of central bank independence until 1991 either at the national or European level (Balleix-Benerjee 1997). The Neo-Gaullist RPR was opposed for nationalistic reasons and sought the maintenance of Council control over a future European monetary policy. The Socialist party placed stress on social goals and the appropriate policy mix. Moreover – and surprisingly – the UDF confederation supported only a more cautious, evolutionary approach – although one of its more pro-European components came out strongly in favour of central bank independence.
Despite this tradition of opposition, following the ratification of the Maastricht Treaty the large majority of mainstream political leaders either defended central bank independence and the ECB’s goals or abstained from comment. However, since the start of EMU’s Stage Three in 1999 and, in particular, since the start of the economic slowdown in 2001 the antagonistic opinions of influential advisers and leading politicians alike have been heard. On 23 January 2002, Pascal Lamy, the Socialist French commissioner for trade and Jean PisaniFerry, then the head of Prime Minister Jospin's Economic Analysis Council (Conseil d’analyse économique), published (in a 'personal capacity') a pamphlet calling for the Eurogroup to be assigned the responsibility for setting the inflation target that the ECB is expected to meet (Lamy & Pisani-Ferry 2002). The authors argue that the ECB's pursuit of low inflation has been too restrictive and has hindered economic growth in the Euro-zone.
The European monetary policy model should be re-established along the lines of fiscalmonetary authority relations in Britain, Denmark, Sweden and New Zealand, where the Treasury sets the inflation target that the central bank is expected to follow. 14 The authors also argue that the British target of 2-3 per cent, set by the government, has proved its merit in comparison to the more restrictive 2 per cent set by the Governing Council of the European Central Bank, with its singular objective of price stability. The authors note that ECB's structure was determined by the need to reassure the German public that it would be as tough on inflation as the Bundesbank. The changed economic conditions since the start of EMU – 14L'Europe de nos volontés, Plon, 2002. The pamphlet almost certainly had the blessing of Prime Minister Jospin, with an eye to the upcoming French presidential and National Assembly elections. Lamy and Pisani-Ferry likewise challenged the logic behind the continued application of the Stability Pact's 3 per cent budget deficit criterion.
especially in Germany – required a different approach to monetary policy. Only reform along British lines would enable a more flexible monetary policy that could better respond to the economic downturn in most of the Euro-zone.
Several leading French politicians have also called for the transformation of the ECB’s goals. The sound money core of the EMU project and the independence of the ECB was an object of attack by the Jospin Socialist-led Government in its early months. Leaders in the Raffarin and de Villepin UMP governments have been similarly critical. On 14 July 2004, in his annual televised Bastille Day speech, President Chirac chose to focus upon the need to reform the mission of the ECB in order to qualify the pursuit of low inflation – implying that ECB policy contributed to sluggish economic growth in the largest Euro-zone economies. As Finance Minister, Nicolas Sarkozy called for the ECB to adopt a Federal Reserve-style target that includes economic growth (Financial Times, 11.6.2004) and as the UMP’s 2007 presidential candidate he attacked ECB’s focus on low inflation. The ambition of all Europeans, he argued, ‘should be to redefine the principles and the rules of economic and monetary union by carving them in a humanist and social dimension that is so dearly lacking in Europe’ (Euroactiv.com 23.2.2007). 15 Proposal 89 of Ségolène Royal’s 2007 presidential electoral programme calls for the inclusion of an employment creation objective in the ECB’s Statute. 16 Several leading politicians and 2007 presidential candidates – including Sarkozy, de Villepin and Royal – have also made veiled attacks on the ECB’s goal-setting independence (see Le Monde 9, 19 and 22.12.2006). In December 2006, when criticising the 15 ‘Sarkozy wants “protective EU” to offset globalisation’, Euroactiv.com, Friday 23.2.2007, updated Wednesday 28.2.2007, http://www.euractiv.com/en/elections/sarkozy-wantsprotective-eu-offset-globalisation/article-161948, accessed on 10 March 2007.
16 The Socialist candidate appears not to have noticed that the ECB’s secondary goal is presently economic growth and employment creation.
ECB’s decision to raise its interest rate, Royal insisted that the bank be ‘submitted to political decisions’ because it is not its job ‘to order [commander] the future of our economies’. 17 Conclusion The Raffarin Government’s policy on Stability Pact reform was consistent with French policy positions on EU-level economic governance over the past fifteen years. French governments have sought to reform the restrictive rules of the price stability function of economic governance (the Maastricht Treaty and SP rules) but they could tolerate them as long as they were not rigidly enforced. These restrictive rules have been most explicitly challenged in the context of electoral contests: thus the positioning of the Plural Left coalition in the 1997 legislative elections and the Chiracian Right in the 2002 presidential and legislative elections.
Economic governance as tightened macro-economic policy coordination has been a desired goal as long as most of this coordination remained ‘soft’ and retained a broadly – if not actively – interventionist character emphasising growth and job-creation in line with the goals established in the Lisbon strategy. Economic governance as the explicit elimination of the ECB’s goal-setting and operational independence has only occasionally been a stated goal of French governing politicians since the signing of the Maastricht Treaty, which may reflect the recognition of the unlikelihood of such a reform. A more regular feature of French government policy announcements has been the extension of some kind of political control in macroeconomic policy making that effectively qualifies the bank’s ‘sound money’ emphasis.
Yet French governments have never spelled out the institutional arrangements and decision making procedures whereby this political control would be achieved. The reinforcement of the role of the Eurogroup in Euro-zone macro-economic policy coordination has been a French objective for over a decade. French governments have advocated giving the 17The precise wording that the Socialist 2007 presidential candidate used was ‘soumise à des décisions politiques’ (Le Monde, 22.12.2006) body a treaty-recognised status and power to make decisions. However, beyond the reinforced status of this intergovernmental body, French governments have failed to clarify precisely how macro-economic policy coordination would be reinforced. Indeed, the most common feature of French discourse on EG has been the absence of any concrete proposal of transferring real economic policy competences from the national to the European level.
Indeed, it might be argued that French efforts with regard to the reinforced status and role of the Eurogroup stem principally from the restrained, informal and secretive features of this body (Puetter 2004). These features ensure a flexible application of the rules and a politically sensitive margin of manoeuvre, thus well reflecting the paradox – indeed inherent confusion – of French policy on economic governance that is both intergovernmental and dirigiste in nature. In terms of the Europeanization of French policy, EG has brought about minimal ‘topdown’ ‘transformation’ despite the early ‘pace-setting’ efforts by the German. Since 1993, but in particular since 1999, French governments have engaged a kind of ‘pace-setting’ of their own to shape a more acceptable economic governance that maximises margin of manoeuvre in the context of Monetary Union. Yet French ‘pace-setting’ is ultimately confused because of contradictory French preferences.
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