Friday, August 03, 2012

Fiscal pact headache to weigh on Hollande holiday

By Catherine Bremer

PARIS (Reuters) - Resurgent divisions in France's ruling Socialist Party over the sway the European Union holds over national affairs could complicate President Francois Hollande's bid to get the bloc's fiscal compact ratified in the weeks ahead.

France's President Francois Hollande and his companion Valerie Trierweiler (L Rear) arrive at the presidential retreat of Bregancon in Bormes-les-Mimosas August 2, 2012. REUTERS/Philippe Laurenson

Hollande began a two-week vacation on Friday with it still unclear whether adopting the budget responsibility pact would require a constitutional change - something the president hopes to avoid.

Lawmakers on the left are calling for a fully fledged debate on European fiscal integration that threatens to revive old demons for Hollande and accentuate a divide with Berlin just as EU leaders are battling to restore faith in the euro.

Having in the past opposed the fiscal pact - which ties governments to deficit-cutting plans and is a condition for further steps to quell the debt crisis - Hollande must now rally his party behind it, weeks after getting it sweetened with a package of growth measures.

Aides say he dreads opening a debate - or even potentially a referendum - that will revive memories of his failed campaign for a "Yes" vote in the 2005 national popular vote on a European constitution.

"This will be a moment of truth for the French and for the left," said Socialist lawmaker Christophe Caresche, a member of the National Assembly's European Affairs committee.

"Hollande learned his lesson in 2005. He wants to advance without creating irreparable fractures. He does not want to get sucked into having to lead a federalist European project."

Hollande, who is vacationing on the 13th-century Mediterranean island fort of Bregancon, still opposes enshrining a budget-balancing rule in the constitution and hopes a "super-law" holding governments to meet budget targets would suffice.

He will return to work in mid-August just as France's constitutional council is due to rule on whether such a "super-law" could hold sway over public finances, given the constitution stipulates budget autonomy for French regions.

In preparation for a negative outcome, Hollande's legal team is working on a draft constitutional clause permitting the existence of a super-law on budget targets which the president hopes could be inserted with minimal upset in parliament.

"Hollande is traumatised by 2005. He wants to avoid a big debate and a crisis in his party," said a presidential source.

PRESSURE BUILDING

The Socialists have a majority in both houses of parliament, which should mean Hollande could pass a "super-law" as soon as September, if the constitutional council consents.

But if, instead, a constitutional clause is necessary, inserting it would require a three-fifths majority in a joint parliamentary vote. With a number of left-wing deputies saying they could vote against, Hollande risks being heavily dependent on support from centrist and conservatives lawmakers.

What Hollande most fears, as he tries to convince Berlin that he is committed to deeper economic union while reassuring left-wingers that nothing will happen too fast, is a heated discussion that could spark calls for a referendum.

"We cannot avoid a debate," said Socialist lawmaker Barbara Romagnan. "We have a decision to take which is: will we accept this treaty? I don't see how we can say yes if we want to meet our economic promises to voters and respect democracy."

External pressure is building on France to drop its age-old resistance to the kind of fiscal and political union Berlin is pushing for, with policymakers from across Europe pressing the issue in recent interviews in French newspapers.

Hollande has backed Italy's push for rapid intervention by the European Central Bank or the EFSF bailout fund to lower borrowing costs in Italy and Spain. Yet Germany has made such measures conditional on a euro zone road map to fiscal union, a concept many in France fear would cede too much sovereignty.

"To the extent that political integration is viewed by more and more people as a necessary condition, it is going to pose a major challenge to France," said Andre Sapir, a fellow at the Bruegel think tank in Brussels. "The ball is in France's court."

(Additional reporting by Emmanuel Jarry)

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Friday, August 03, 2012

Fiscal pact headache to weigh on Hollande holiday

By Catherine Bremer