Tuesday, July 10, 2007

Sarkozy Making Himself Unpopular?

In the FT today:

Sarkozy faces eurozone critics

Nicolas Sarkozy, French president, on Monday night faced a barrage of criticism over tax-cutting plans that blow a hole in the 13-member eurozone’s promise to achieve balanced budgets by 2010.

Peer Steinbrück, German finance minister, led the attacks on Mr Sarkozy’s budget plans and mocked the president’s separate call for action to massage down the euro exchange rate to defend European exports.

With German exports booming, Mr Steinbrück said before a meeting of single currency finance ministers in Brussels: “I’m not worried about a strong euro, I love a strong euro.”

The tensions came to a head over dinner. Germany, Austria, Finland and the Netherlands were among the strongest critics of Mr Sarkozy’s budget strategy, with Belgium the most sympathetic. “It was pretty heated,” said one diplomat in the room.

Mr Sarkozy, making a highly unusual appearance by a head of government at the eurogroup, appeared chastened at a post-dinner press conference.

He said his reform programme incurred upfront costs, in the form of tax cuts, which justified a possible delay until 2012 in achieving a balanced budget. France, together with other eurozone countries, promised three months ago to aim for a balanced budget by 2010.

He said he hoped the tax cuts would create a “confidence shock” which would kick-start the French economy. “If it leads to greater growth we might be able to make 2010,” he said.

He also agreed to make a small additional effort to reduce the deficit to 2.4 per cent instead of 2.5 per cent in 2007 and to produce a revised French budget and reform plan in September.

“Peer pressure worked tonight,” said one finance ministry official. Mr Sarkozy claimed the pact was “intelligent” enough to permit a temporary increase in public spending if it funded “unprecedented” reforms. EU officials say only part of the proposed tax cuts appear to cover such reforms.

Jean-Claude Juncker, Luxembourg prime minister and chairman of the eurogroup, put the best gloss on the evening, claiming that France was becoming “the country of reform”.

Meanwhile Mr Sarkozy admitted he had not seen “exactly eye to eye” with Jean-Claude Trichet, European Central Bank president, when they discussed monetary policy.

Mr Sarkozy wants the bank to cut rates and to take action to curb the rise of the euro, while Mr Trichet is determined to keep the brakes on inflation.

The French president also dropped his proposal to hold an economic summit for the 13 eurozone leaders.

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