Brussels signals easing of fiscal rules

ΠΗΓΗ: FT

By Peter Spiegel in Brussels and Hugh Carnegy in Paris

Senior European officials are championing an investment pact to stimulate economic growth in the eurozone as voters in France and Greece look set to punish leaders who have backed tough austerity measures.

In a marked shift of emphasis, Olli Rehn, the EU’s top economic official, will on Saturday call for additional government spending for large-scale infrastructure projects, arguing there is not sufficient private-sector demand to create jobs. Unemployment has surged in several eurozone countries, hitting its highest levels since the creation of the single currency and fuelling voter anger.

The commissioner will also give a clear signal that he is willing to loosen the EU’s tough new budget rules for countries like Spain, which has been forced to slash public spending in the face of a sharp economic downturn to meet Brussels-mandated deficit levels.

“The stability and growth pact is not stupid,” Mr Rehn will say, according to a draft of his address seen by the FT. “Yes, the EU fiscal framework is rules-based … but at the same time, the pact entails considerable scope for judgement when it comes to its application.”

The European commission’s new push could antagonise Berlin, which has rejected new public money and is already fending off calls for more growth-oriented policies by François Hollande, the frontrunner in Sunday’s French presidential contest.

There are signs Mr Hollande may seek to go even further if he wins the election and push for anti-crisis measures already rejected by Angela Merkel, Germany’s chancellor. People close to the Hollande camp say he would seek to double the size of the eurozone’s rescue system to €1tn and allow it to borrow from European Central Bank, essentially giving it unlimited funds.

“The [fund] should have a banking licence to have the same type of guarantee that banks benefit from from the ECB,” said Elizabeth Guigou, a former justice minister close to Mr Hollande’s team. She added it “must also be possible to reopen the question of the mutualisation of [future] debt,” a reference to sovereign bonds commonly backed by all 17 eurozone countries, a plan anathema to Berlin.

Pierre Moscovici, Mr Hollande’s campaign director, said he believed a compromise with Berlin was possible: “This is not at all about provoking a crisis.”

Incumbent Nicolas Sarkozy, insisting he could still overtake Mr Hollande, told a final campaign meeting the result would come down to “a razor’s edge”. Final polls showed Mr Hollande still in the lead, with about 52 per cent, but the margin had narrowed to the thinnest yet.

Much of Mr Rehn’s “European investment pact” – more funding for the European Investment Bank, creating eurozone bonds to fund infrastructure projects, and using the EU’s own budget to co-finance new investments – have been proposed in the past. But publicly detailing the agenda on the eve of the French presidential election is a sign of how much an expected victory by challenger Mr Hollande has shifted the Brussels debate.

The European Commission on Friday will release new economic forecasts, expected to be revised downward for several eurozone countries. The report could give Mr Rehn the justification needed to extend deficit-reduction timetables by as much as a year, as some EU and International Monetary Fund officials have advocated.

In a sign of deepening concern over the course of the crisis, Norway’s $600bn sovereign wealth fund announced it had sold all its Irish and Portuguese bonds because of uncertainty in the eurozone. Officials are also becoming increasingly concerned about Greece’s national elections, also on Sunday, which appear likely to give significant backing to multiple anti-EU splinter parties.