Debt 'redemption' fund with Berlin sought by Hollande

 

FRENCH PRESIDENT François Hollande has stepped up his confrontation course with Berlin by calling for euro zone crisis solutions of “imagination and creativity” – including a joint “redemption” fund to help tackle sovereign debt.

Mr Hollande’s call came as his Socialist Party was poised to win an outright majority in second-round parliamentary elections tomorrow in France, giving him a fresh mandate to push for new “growth instruments” in the euro zone.

The redemption fund idea, devised last autumn by the “wise men” economists who advise Berlin, involves euro zone states pooling debt above 60 per cent of GDP, refinancing it through low-interest common bonds and, in exchange, states agreeing fixed debt repayment plans.

Leaders of Germany’s opposition Social Democrats said they discussed the idea with Mr Hollande on Wednesday in Paris.

“To deepen financial union, there are many options such as a financial transactions tax and joint debt issuance, including euro bonds, euro bills or a debt redemption fund,” said Mr Hollande, after talks with Italian prime minister Mario Monti. The Italian technocrat leader, once seen as a close supporter of Dr Merkel’s strategy, said France and Italy “want to work on common proposals” to tackle the euro zone crisis.

Both countries favour the use of eurobonds and other instruments to reduce debt. Mr Hollande has called for the bloc’s permanent bailout fund (ESM) to be given a banking licence to allow it borrow money from the ECB.

All these measures have been dismissed by Berlin as suitable for treating only the symptoms and not the cause of the crisis.

After Mr Hollande’s remarks his prime minister, Jean-Marc Ayrault, went on television to insist Paris was not constructing an “anti-Merkel front.

“We have a common interest to give Europe a future,” he told France in perfect German. “I’m not looking for an anti-Merkel front: that would be a political mistake and the false path. That is not my position and not that of France.”

Of all the items on Mr Hollande’s wish list, the debt redemption fund may have the highest chance of being implemented in some form.

The German government claims that a fund in its original form is unworkable because it would breach the no-bailout treaty rule and be ruled unconstitutional. The SPD opposition says it has received contrary legal opinion.