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'Spain aid a first step to banking union' : France

Source: Reuters - Tue 12th Jun 2012
'Spain aid a first step to banking union' : France

An aid package of up to €100 billion for Spain's banks is just the first step towards a banking union in the euro zone, French Finance Minister Pierre Moscovici said on Tuesday.

Moscovici said events in the coming weeks, including the legislative elections in Greece and France next weekend and a summit of European leaders at the end of June, would prove decisive for the future of Europe.

"What we did for Spain was a convincing step forward but we must go further still," the minister told Europe 1 radio.

"It is the moment where Europeans must define the framework for definitively consolidating the euro in political, budgetary and social terms," he said.

Socialist President Francois Hollande, who took office last month, has thrown France's support behind a "banking union" in Europe, which would create a common financial regulator, and a single deposit guarantee and capitalisation fund for banks.

Hollande is more open to the idea of ceding sovereignty to European institutions to safeguard the euro than was his conservative predecessor Nicolas Sarkozy, but faces a tough struggle convincing ordinary French people, many of whom are angry at the rising cost of bailouts and high unemployment.

"President Francois Hollande has made a proposal to move ahead towards a banking union in Europe, towards stability, solidarity and in the same time leading a growth policy," Moscovici said.

In return for backing German-inspired steps towards greater budgetary union, Hollande has called for measures to stimulate flagging growth in Europe, including joint project bonds and more lending by the European Investment Bank (EIB).

With concerns lingering that Italy may be next in the firing line after Spain, Moscovici insisted that Italy had a solid economy and that the euro zone would reassure investors in the coming weeks that measures were being taken to boost growth.

GROWTH REVISION

Unemployment in France hit a 13-year high of 10% in Q1, data showed last week, while the Bank of France predicted the economy would contract by 0.1% in Q2.

After a string of weak economic figures, the government was reviewing its growth forecast for next year, Moscovici said.

The official forecast, drafted under Sarkozy's government, is for 1.75% growth in 2013, well in excess of the IMF's estimate of 0.9%.

A downward revision would imply billions in additional austerity measures if France is to meet its EU deficit target of 3.0% of GDP next year, after reducing the shortfall to 5.2% by end-2011.

"We are adjusting our forecasts for next year, but if we implement a policy of growth, of industrial renewal, of fighting unemployment, I have confidence in the French economy," he said.

In a rare piece of positive news, the economy created more jobs than previously forecast in the first quarter, the INSEE national statistics office said on Tuesday.

Non-farm payrolls rose by 18,300 in the first quarter, exceeding a preliminary forecast by some 8,000, it said.

The government has denied media reports that it plans to delay reaching the 3% deficit target beyond 2013 in the face of a weakening economy.