Economic growth is the theme for spring

Spring is the season of growth, and economic growth in Europe has become the dominant theme of the moment. It is certainly a central theme of the French presidential elections.

In a few days time the European Commission plans to launch its economic growth plan for Europe, setting out the measures it believes that member states must take to stimulate their economies. The plan will focus on what the recent Greek sustainability report called “internal devaluation”, slashing the cost of labour by sweeping away restrictive labour practices, shifting taxes from employment to consumption and stimulating the mobility of labour.

The Commission’s plans will provide a timely backdrop to the French election campaign, which focuses so much on the balance between austerity and jobs and how to stimulate growth while at the same time bringing national budgets under control.

There seems to be clear blue water between Sarkozy and Hollande on economic policy. Sarkozy remains committed to a programme of cost-cutting, with much emphasis on reforming labour laws and stimulating export industries. Hollande wants to reverse the retirement age back from 62 to 60, to impose 75 per cent income tax on the rich, to boost social housing and to recruit a further 60,000 teachers.

Both the main contenders for the May 6 run-off are seeking to establish their patriotic credentials with stirring rhetoric. Hollande says “je veux rétablir notre souveraineté nationale”; Sarkozy praises De Gaulle’s empty chair policy, from which, he says, the common agricultural policy arose. But in truth the freedom of action for Le President – or any other European leader – is more limited than it has ever been.

François Hollande appears on the face of it to mount a bigger challenge to mainstream European policy, with his commitment to renegotiate the “Merkozy” treaty on economic discipline in order to put more emphasis on growth. But his latest remarks in today’s La Tribune seem cautious. If he wins the election he does not wish to challenge the disciplinary aspects of the treaty, but only the growth aspects.

(I can already see a new protocol which would emphasise the need for growth being hatched in the corridors of the Commission for a possible Hollande victory . That is, after all, the mood of the moment).

M.Hollande well knows that whatever his deep antipathy to financial markets and the rating agencies, any weakening of France’s commitment to take tough medicine would push up the cost of borrowing – perhaps dramatically. He has even less room for manoeuvre than François Mitterrand in the early ‘80s when he sought to build socialism in one country, only to be forced to change policy as the franc slumped.

As for Sarkozy, his threat to apply EU preference to French public procurement contracts unless there is reciprocal treatment for public contracts in countries such as China cannot be applied unilaterally without major dispute in Europe and beyond. On the other hand his aims may be partly met by the WTO Agreement on Government Procurement, a voluntary deal which came into effect just two weeks ago after 10 years of negotiation and is expected to be joined by China.

Sarkozy’s aggressive position on Schengen is no surprise. Although given new focus by the killings in Toulouse it is consistent with his position 12 months ago, when he threatened to renounce the Schengen agreement as migrants crossed into Italy en route to France and it was agreed that the agreement should be reviewed.

It is a fascinating election. The polls suggest a photo finish for the first round on April 22, but who knows where the supporters of Le Pen, Mélenchon and Bayrou will put their votes on May 6? And what if parliament returns a conservative majority under an Hollande presidency. Cohabitation? What economic policy will France then adopt?