People are starting to notice: Francois Hollande, France’s “anti-Sarkozy” and the current leader in presidential polls, is serious. He wants big changes to the newly signed European fiscal discipline treaty. According to Reuters, Hollande will not “unravel” the treaty but wants “precise measures” like “big industrial projects”, not “cosmetic changes”:
“There are parts of this treaty we can accept, but we will not accept sanctions that are against countries’ interests and, second, we will add growth, activity, big industrial projects and eurobonds to pull the economy forward.”
Hollande’s insistence on describing the fiscal treaty as incomplete is rattling nerves around Europe because of worries that any changes to the treaty will open an endless list of demands from other European states. The problem is that if Hollande’s promise to renegotiate the treaty is mere campaign posturing, it could damage French credibility. On the other hand, if Hollande genuinely intends to include a growth clause in a treaty aimed at achieving budgetary discipline, he could actually derail the treaty’s ratification and damage European legislative process, which is already incredibly weak.In an interview with the German magazine Spiegel, Hollande makes pretty clear that his determination to renegotiate the treaty is not just a bluff. (For an English language article about the interview, click here.) If the French do what they are telling pollsters they plan to do, and dump Sarkozy for Hollande, the EU fiscal plan really is toast.As usual in EU controversies, everybody is right and everybody is wrong. Merkel and her hawkish German allies are right that rent seeking, corrupt elites and interests in the Club Med countries will steal anything that isn’t nailed down, and pouring more money into their government coffers is a surefire recipe for continued waste and abuse. Hollande and his friends, meanwhile, are quite right to say that the fiscal straitjacket the Germans propose won’t solve the underlying Club Med problem of slow growth.Hollande’s proposal, that eurobonds could be made available for specially selected infrastructure and other projects that would theoretically provide economic stimulus even as spendthrift southern governments continued to impose austerity on other fronts, isn’t a total non-starter. As it is, European regional funding will be an important source of government spending in poor countries as domestic appropriations dry up, and the eurobond proposal would essentially expand this funding source.But some problems remain. First, there is plenty of waste and fraud in the spending of EU regional funding already. Call us crazy if you like, but Via Meadia doesn’t think that Sicily is going to clean up its act just because the new money is funded by eurobonds. More to the point, the real changes that Club Med needs run much deeper than budget discipline. As many have pointed out, from the standpoint of budget deficits, pre-crisis Spain was not in any trouble. Greece, Italy, Portugal and Spain are going to have to rip up some of their most cherished labor laws and business regulations to make the euro work, and neither Hollande’s French Socialist party nor the other mainstream parties in Club Med are willing to go that far.The underlying problem is that the eurozone countries don’t work as a currency union because their economies and cultures are too different, and because their peoples collectively don’t have the will to do what it takes to make the currency work. The Germans aren’t willing to shell out enough money to keep the Greeks and Spaniards and Italians on track, and the Club Med countries don’t want and won’t accept the structural changes that could make their economies competitive enough to share a currency with Germany.Hollande’s proposals don’t address these painful truths; his proposed changes in the fiscal treaty will complicate the job of getting a new treaty into place without solving Europe’s currency problems.But Hollande is right about one thing: as he delicately points out to Spiegel, Merkel’s endorsement of Sarkozy for re-election may not help him all that much with French voters. “Vote like the Hun” has never worked particularly well as a campaign slogan in France. As for the personal relationship between the French candidate and the German Chancellor campaigning for his opponent, Hollande is polite. We aren’t that close, he says. Merkel and Sarkozy are often referred to in Europe as Merkozy; Hollande says he has no plans to merge names.