France Seeks to Avert Eurozone Tensions with Germany

France aims to avoid conflict with Germany by keeping a low profile on the prickly issues of the euro's strength and the ECB as its presidency of the European Union approaches, French sources said.

"The best way to mess up the French presidency (of the EU) would be to start with polemical subjects like those, for which there's no solution in sight," a source close to French President Nicolas Sarkozy said.

On Wednesday, the European Commission is to make proposals on improving the way the eurozone is run, weighing into an often fraught debate as the 10th anniversary of the shared European currency approaches in January 2009.

The proposals scope will be limited to improving the monitoring of public finances and implementing reforms while steering clear of sensitive issues such as exchange rates and the ECB's powers, topics dear to Paris.

Nevertheless, the debate is likely to heat up during the second half of the year which happens to coincide with France's six-month EU presidency of starting in July.

In the past, Sarkozy has not hesitated to fire off criticism of the European Central Bank for its supposed passivity towards the euro's rise on currency markets and for keeping interest rates steady despite weakening growth.

Such positions have frequently triggered cold rebuffs from Berlin, which considers the ECB's independence, written into the Maastricht Treaty, to be sacrosanct.

However, in a change of tact, this time Paris has decided "not to take Germans head-on," a French diplomat said on condition of anonymity.

Germany has already refused any questioning of the ECB's independence, which Berlin considers as vital to the Frankfurt-based central bank's mandate of maintaining price stability.

Under German pressure, France has had to shelve plans for a mini summit of eurozone leaders this summer with Germany eager to head off any opportunity for an offensive against the ECB.

However, France has recovered an important anti-ECB ally with the re-emergence of Italian prime minister elect Silvio Berlusconi on the European political stage and who shares many of Sarkozy's positions against the central bank.

Sarkozy "was the first to sound the alarm" about the euro "but he's gone quiet because others have taken up the cause or even gone further" in worrying about the euro's appreciation, the source close to the Sarkozy said.

Aware that changing the ECB's mandate would require the near impossible revision of EU treaties, Paris has been counting on the power of dialogue during its EU presidency to change minds.

France is also hoping that with euro's strength likely to last some time more eurozone countries will eventually also follow Paris' lead.

The euro and the ECB aside, France will have another sensitive problem to manage during its EU presidency in the form of its strained public finances, over which Paris is likely to get an early warning soon from Brussels.

However, France has no intention of giving ground on that front with Paris already shrugging off the threatened early warning as having "little import."

"Budgetary rigour serves no purpose (by itself), it's reforms that are needed" because they "allow the deficit to be reduced," the source close to the Elysee palace said, dismissing the European Commission's hardline on budgetary discipline as "absurd."

Source: AFP

Other news