Hollande Deficit-Delay Campaign Begins as Sapin Visits Berlin

President Francois Hollande’s campaign to slow the pace of France’s deficit reduction effort begins today as the new ministerial duo responsible for the economy and finance court their German counterparts in Berlin.

French Finance Minister Michel Sapin will meet with Wolfgang Schaeuble and Arnaud Montebourg, who since last week is responsible for both the economy and industry portfolios, holds talks with Economy and Energy Minister Sigmar Gabriel. Sapin and Schaeuble are due to brief reporters at about 11.30 a.m. in Berlin.

At stake is how much room for maneuver Hollande will have as he seeks to nurture France’s recovery after two years of almost no growth and jobless claims at a record. The Berlin visit reflects the reality that any further delay for France in reaching targets enforced by the European Commission needs the political support of Germany, Europe’s largest economy.

“A showdown between Paris and Brussels looms,” said Nicholas Spiro, of Spiro Sovereign Strategy in London. “The goal of Michel Sapin is to win time.”

France’s deadline for reaching the euro-area deficit limit of 3 percent of gross domestic product has already been postponed twice, most recently in September. Then, the French government vowed to reduce the deficit to 3.6 percent of GDP this year and 3 percent in 2015. Last year the shortfall was 4.3 percent rather than the 4.1 percent to which Hollande had committed.

‘No Question’

In his first comments on French fiscal strategy after being named finance minister last week, Sapin tried to have it both ways, saying that France would meet its targets while hinting it would appeal to its partners to soften them.

“The targets, we’ll maintain them. There’s no question of changing direction,” Sapin said April 3. “France will be respected by the others because it will provide all the arguments to be respected,” he said, adding that “the only concern” for the euro zone should be growth and employment.’’

Initial reaction to suggestions from Hollande and Sapin that French deficit cutting should slow hasn’t been positive.

Dutch Finance Minister Jeroen Dijsselbloem urged France to stick to its deficit-reduction plans, signaling his opposition to Hollande’s bid to slacken the pace of austerity.

“France has already had more time,” Dijsselbloem, who chairs meetings of his euro-area counterparts, told reporters in Athens last week. “Time is running out.”

Political Pressure

European Union Economic Affairs Commissioner Olli Rehn and Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Zeitung in an interview that giving France extra leeway would set a bad example. Even Benoit Coeure, a French member of the European Central Bank’s executive board, cautioned Hollande against delaying deficit reduction.

Yet political pressure is building on Hollande from within his own Socialist Party after a rout in municipal elections a week ago that prompted the Cabinet overhaul. Hollande responded by saying he would press ahead with cuts in payroll charges for business in a bid to revive competitiveness and growth.

Montebourg’s presence in Berlin along with Sapin is a new approach. Between Hollande coming to office in May 2012 and last week, Finance Minister Pierre Moscovici was responsible for steering economic relations with Germany.

During that time, Montebourg’s focus was on championing French industry, a remit that led him to call for nationalization of a steel plant and to back Bouygues, the losing bidder in a multi-billion euro takeover battle with Altice for the SFR mobile phone operator.

Since winning more responsibility for economic matters in the cabinet shuffle, Montebourg has repeatedly vowed to fight “austerity and deflation.”

“Politics can act positively on the economy, we’ve turned the page from laissez faire,” Montebourg said April 3 on France 2 television. “We, here, are militants for growth.”

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