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The French election and its implications for the EU fiscal agreement

April 10, 2012

France will hold the first round of its presidential election later this month, and EU issues have played a prominent role in the campaign. Polls indicate that the first round will not produce a candidate who garners 50%, and thus there will likely be a second round contest between incumbent Nicolas Sarkozy and Francois Hollande, the leading candidate of the left. Many polls have shown Hollande with a slight lead over Sarkozy in a hypothetical, but increasingly likely, head-to-head, second round contest between the two.

Hollande caused consternation in EU circles by earlier promising to renegotiate the terms of the recently signed European fiscal compact should he assume office. This fiscal agreement, which was signed by 25 EU governments at the beginning of March (Britain and the Czech Republic did not sign), would give the European Commission bolstered powers to monitor national budgets and impose sanctions on countries whose deficits exceed 3% of GDP. Unlike full treaties, which require ratification by all member states before they take effect, this agreement requires ratification from only 12 states. Countries that refuse to ratify the treaty by a certain date will be ineligible to receive future bailouts. (See here for a helpful overview of the treaty and the ratification process.)

In the past couple of weeks, Hollande has backed away from earlier threats to radically renegotiate the treaty, claiming instead that he would merely push to add more pro-growth and job creation clauses to counterbalance the heavy emphasis on austerity currently contained in the document. While Hollande’s earlier statements raised some alarm bells in Brussels, his emphasis on growth policies has found sympathetic ears in several national capitals. Spanish and German left-wing parliamentarians have echoed Hollande’s views, while Ireland, which plans to hold a referendum on the agreement in May, is closely watching developments in the French presidential campaign.

Given the low threshold (twelve ratifications) for the treaty to take effect, Hollande’s threatened renegotiation would not likely spell the demise of the treaty, but France’s abstention would clearly be a symbolic setback. For now, German officials seem content with Hollande’s more toned-down remarks about complementing, rather than radically revising the treaty. Writing in the Financial Times, however, Howard Davies worries that Hollande’s rhetoric fits a pattern of French protectionism and hostility to the EU that extends beyond discussion of the fiscal agreement.

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