French Election, Proxy Battle Over Austerity

Right wing parties across Europe have lined up behind incumbent Nicolas Sarkozy while the left supports his socialist challenger.

With conservative leaders lining up behind incumbent president Nicolas Sarkozy and socialist parties across Europe expressing their sympathy for his challenger, François Hollande, the upcoming French presidential election looks to be a proxy battle over economic policy.

German chancellor Angela Merkel, who leads a center-right coalition, has been the most vocal in her endorsement of the sitting French president among foreign right-wing leaders. “I support Nicolas Sarkozy in every manner because we belong to friendly parties,” she said in early February.

Merkel rightly fears that Hollande will imperil the fiscal compact that was signed by all European Union member states, except the Czech Republic and the United Kingdom, earlier this month.

Left-wing parties in Germany, the Netherlands and Spain have thrown their support behind Hollande’s call to renegotiate the treaty which requires that eurozone member states reduce their deficits to under 3 percent of gross domestic product in 2013.

Hollande, who is likely to defeat the conservative Sarkozy in the May 6 election, believes that the treaty should be revised to put a greater emphasis on growth and curbing unemployment. He welcomes the support from other European socialists.

“The fact that some have started to think about possibilities, renegotiations and annexes proves there is a growing awareness that this treaty is flawed,” Hollande said in Paris this week.

The leader of Germany’s Social Democratic Party, Frank-Walter Steinmeier, earlier told the Frankfurter Rundschau that “additional measures to promote economic growth” should be included in the fiscal pact. He also said to favor a financial transaction tax which both French presidential candidates support.

The secretary general of the Spanish socialists, who were thrown out of power late last year, also recommended a renegotiation of the treaty “so that there is growth in addition to austerity.”

In neither country, ratification of the text is in doubt because the ruling parties command majorities in their parliaments. In the Netherlands, however, the center-right minority government needs opposition votes to enact the budget charter. Diederik Samsom, who was elected Labor Party leader on Friday, has threatened to withdraw his support unless the treaty is revised to allow more room for fiscal stimulus.

The Dutch were among the staunchest proponents of sanctions for euro countries that break the budget rules and insisted that profligators be forced by the European Commission to rewrite their spending plans if they fail to rein in high deficits.

France had a €96 billion shortfall in 2011 which was equivalent to 7.1 percent of GDP. As a result, it lost its top credit rating from the Standard and Poor’s agency in January.

Both major party candidates for the French presidency have said that they will balance the budget before the end of their upcoming five year term in office.

Sarkozy’s conservatives, currently in government, raised taxes last year to mend the deficit. Hollande would raise them further. He has proposed to levy a 75 percent tax on incomes over €1 million and increase taxes on incomes over €150,000 from 40 to 45 percent. Sarkozy has criticized these plans as “tax policies that discourages work, that discourages initiative, isolate France from the rest of the world.”