Euro plight fuels France's political vision

One of the most interesting spectator sports during the upcoming French presidency of the EU will be watching the efforts of Paris to foster what the Finance Minister, Mr Laurent Fabius, calls "a European monetary and economic culture".

Since the European Central Bank (ECB) was established two years ago, Prime Minister Lionel Jospin has been yearning for a "political pole" to counterbalance Mr Wim Duisenberg's financial experts. This has been opposed by Mr Duisenberg on the grounds that the ECB needs no "economic government".

Nor did the ECB governor's German mentors relish the thought of politicians sounding off - presumably in French - about the political ramifications of their currency.

But the euro's poor performance has given new impetus to France's vision of economic harmony across Europe. It is because the euro is run by technocrats with no political responsibility that the currency fell so low, the French argue. The French president, prime minister and finance minister have all said there can be no strong euro until the €11 better co-ordinate their budgetary and fiscal policies.

At a ceremony marking the 200th anniversary of the French central bank at the end of May, President Jacques Chirac said: "Now that our monetary policy is unified, we must also give ourselves the means to better co-ordinate our budgetary practices, to strengthen our instruments and procedures of economic decision."

Mr Jospin has said repeatedly that he wants the finance ministers of the 11 euro states "to consolidate the credibility of the euro through more public and united action". It will fall upon his new finance minister, Mr Fabius, to lead the campaign during the French presidency. Speaking recently to financial journalists, Mr Fabius warned against the French propensity for "making grand declarations". He suggested revising the present arrangement under which the €11 ministers convene at 9.30 a.m. on days when the 15 Ecofin ministers are scheduled to meet at 11 a.m. Usually, he said, the four non-euro zone ministers ended up pacing the halls outside while the 11 went into overtime.

Mr Fabius insisted there was no contradiction between an independent central bank and a political authority - the €11 finance ministers - influencing policy. In the US, he said, the Federal Reserve and the secretary of the treasury played complementary roles. Yet both invariably work in the interest of the US, which is what he wants the ECB and the €11 to do for Europe.

"On the political level, we have begun by doing things in a concrete way," Mr Fabius said. "For example, there's a [€11] meeting and the ministers talk about what they can do to raise the exchange rate, knowing that in our [European] institutions, the exchange rate is not solely the responsibility of the Central Bank.

"From there we move on to indepth questions . . . I consider that to be political. That's how it's starting to work. Most countries have a position very close to ours now, which wasn't the case a year or two ago. Under the French presidency, we will try to go further."

Mr Fabius (53) is a former prime minister whose career was frozen for years because of France's AIDS-tainted blood scandal, of which he was cleared last year. After a failed bid to become director of the IMF, he left his job as speaker of the National Assembly on March 27th to become minister of the economy and finance, ranking immediately after Mr Jospin in the cabinet. Mr Fabius has been asked to reduce taxes by 80 billion French francs (£9.6 billion) this year, and swears he will continue the administrative reforms that did for his predecessor.

Mr Fabius is considered a liberal socialist with a reassuring effect on foreign investors. He and the prime minister set aside two decades of personal rivalry when Mr Fabius joined the government. But it is not by chance that Mr Fabius is known as "the French Tony Blair" - and Mr Jospin is known to dislike Mr Blair intensely.

Mr Fabius's closest unofficial advisers are bankers and businessmen - Patrick Careil, the president of the Banque Hervet, Serge Weinberg, head of Pinault Printemps Redoute, Louis Schweitzer, chairman of Renault.

Despite his liberal leanings, Mr Fabius shares the French belief in tax harmonisation.

Now that monetary policy is in the hands of the ECB and budget deficits are severely restricted, the French consider (low) taxation to be the Europeans' last economic weapon. In French eyes, low corporate and labour taxes elsewhere in the EU - especially in Ireland - constitute unfair competition.

At his first Ecofin meeting in Lisbon in April, Mr Fabius said it was "incomprehensible that we were able to agree on something as politically difficult as the single currency, but that we are incapable of doing the same thing in bringing our taxation systems closer together."

Yet the finance ministry at Bercy has all but given up the issue. Harmonising taxes would require a majority vote by EU members - considered impossible at present.