EU Uses Hollande's Victory, Greek Tumult to Preach Growth - Bloomberg

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EU Uses Hollande’s Victory, Greek Tumult to Preach Growth

Newly elected president Francois Hollande attend a ceremony marking the 67th anniversary of the Allied victory over Nazi Germany in Paris. Photograph: Sipa via AP Images

Newly elected president Francois Hollande attend a ceremony marking the 67th anniversary of the Allied victory over Nazi Germany in Paris. Photograph: Sipa via AP Images

May 8 (Bloomberg) -- Andrew Bosomworth, a managing director at Pacific Investment Management Co., talks about the outlook for Europe's debt crisis and investment strategy. He speaks with Sara Eisen and Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The European Commission appealed for pro-growth policies after France’s first power shift to a Socialist president since 1981 and Greece’s electoral rebellion against austerity busted the budget-cutting consensus that has dominated the response to the debt crisis.

The commission refloated proposals including a 10 billion- euro ($13 billion) capital increase for the European Union’s in- house investment bank and the use of EU guarantees for private bond issues to finance transport and construction projects.

“We are seizing the moment of advancing our previous proposals now in the new political climate,” EU Economic and Monetary Commissioner Olli Rehn told reporters in Brussels today.

The climate changed decisively on May 6, when Socialist Francois Hollande won France’s presidential election and voters in Greece flocked to anti-bailout parties that rejected the spiral of budget cuts imposed on the country since 2010 as conditions for staying in the euro.

“The French presidential campaign had the merits of putting the urgency of growth on the agenda,” Hollande, set to take office May 15, said in a Slate.fr interview. He said France will cease being part of a “duopoly” with Germany that imposes austerity on Europe.

Berlin Bilateral

Hollande will test his leverage when he visits German Chancellor Angela Merkel soon after his inauguration. Merkel’s post-election congratulatory message today hinted at their differences, saying the new French leader will face “a time full of challenges.”

The EU’s president, Herman Van Rompuy, sought to capture the pro-growth momentum by calling a special meeting of leaders on May 23, more than a month before the next scheduled summit.

The commission said it is too early to disclose whether its pledge of “flexible” enforcement of deficit rules means that it will grant extra time to countries such as Spain, Italy and France to erase their budget shortfalls.

Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro finance ministers, spoke out for a more balanced approach and said he agrees with Hollande on the “essentials.”

“Only if savings and growth go hand in hand to form one European gesture, can the mistakes of the past be prevented,” Juncker, a past critic of German-French dominance of crisis management, told Luxembourg’s parliament today.

Investment Projects

Commission President Jose Barroso said he expects national leaders at a June 28 summit to approve the extra funds for the European Investment Bank, which could unleash 60 billion euros in loans to co-finance projects worth as much as 180 billion euros.

Based in Luxembourg, the EIB signed loan agreements totaling 61 billion euros in 2011. It has been run since January by Werner Hoyer, formerly Germany’s European affairs minister under Merkel.

The commission urged governments to back plans for “project bonds” that would enable the EIB to guarantee 4.6 billion euros in infrastructure financing during a two-year pilot phase. An additional 40 billion euros could be generated between 2014 and 2020.

That proposal is “not old wine in new bottles,” Barroso said.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net