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Sarkozy puts role of ECB back on French election agenda

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Sarkozy puts role of ECB back on French election agenda

Nicolas Sarkozy

(PARIS) - A few words from French President Nicolas Sarkozy and suddenly the role of the European Central Bank, a source of conflict with neighbour Germany, was back on the French election agenda.

Sarkozy launched the last week of his difficult re-election campaign with a veiled swipe at the independence of the European Central Bank (ECB).

"On the role of the Central Bank in supporting growth, we are also going to open a debate and we will push Europe forward," he told an election rally on Sunday.

"If the Central Bank does not support growth, then we will not have enough growth."

Sarkozy's main adversary Francois Hollande was quick to jump on the sudden change of tack: a little late for the president to be taking up arms after five years in office, the Socialist challenger remarked in a radio interview Monday.

But for Jean Pisani-Ferry, director of Bruegel, a Brussels-based economics thinktank, Sarkozy's gambit was no real surprise.

"It's an old chestnut in French election campaigns," he said, adding that every French political party was obsessed with the issue.

"But it is hard to see how it could result in a fruitful discussion at the heart of the eurozone."

Hollande has said he wants to renegotiate the EU fiscal pact signed last month, which sought to reassure markets by threatening penalities on member states whose spending overshoots deficit and debt limits imposed by Brussels but that are rarely met.

Currently the frontrunner in the presidential race, Hollande wants to complement the deal with measures to encourage growth -- and argues that the ECB should play a central role in helping countries in economic difficulty.

If the ECB had stepped in last year to buy Greek debt, if it had loaned directly to states -- rather than opening its purses to banks to encourage them to lend -- the crisis could have been averted, he says.

Prime Minister Francois Fillon denounced that plan as "completely irresponsible" last December and on Monday said Sarkozy was in no way challenging the ECB's independence.

But Sarkozy has himself pushed hard for greater ECB intervention to stem the eurozone crisis. That put him at loggerheads with Germany, Europe's main economic power, and last November he conceded the point.

On November 24, he issued a joint statement from Strasbourg with German Chancellor Angela Merkel and Italian Prime Minister Mario Monti that no such demands should be made of the ECB.

Sarkozy later defended this compromise as the crucial signal to rally the support of the ECB to prop up Europe's banks and calm the storm of the euro debt crisis.

Sunday's speech however appeared to ease away from the terms of the Strasbourg agreement, a week away from the first round of the presidential vote.

Calls by politicians for the ECB to support growth are usually pleas for the bank to allow a weaker euro to boost exports in countries that are struggling to compete in the world market: countries such as France.

The problem is, the ECB's current mandate clearly rules out this kind of intervention: its role is to ensure price stability, not to come to the aid of member states.

That kind of role for the ECB would require a change of mandate for the bank -- and that would require the agreement of all 27 members of the EU. And Germany, not the least of them, is implacably opposed to the idea.

In Berlin, Merkel's spokesman Steffen Seibert reiterated Germany's position on Monday.

"The German position on the ECB and its independent role is well known in Paris and has been unchanged for a long time," he told reporters.

"In Germany, the independence of the ECB is sacrosanct," said Christian Schulz, an economist at Germany's Berenberg bank. The ECB's mandate means that controlling inflation takes priority, he said.

Nor did any economist contacted by AFP see any prospect of the ECB's mandate being renegotiated.

"If Paris puts the subject of the ECB on the table, there will be a battle of wills, but the chances of getting a result are nil," said Pisani-Ferry.

Ernst and Young economist Marie Diron agreed, adding that as long as France is struggling with a deficit it is not arguing from a position of strength.

The irony for some observers is that Sarkozy, who according to opinion polls faces a second-round defeat by Hollande, made his comments just as his rival was toning down his rhetoric on this issue.

The message from the Socialist camp now is that they are pragmatic, responsible people, which suggests that they are not really interested in picking a fight with Berlin on this issue.

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