Sarkonomics in the EU

True to his image as a whirlwind of activity, the new French leader has invited himself to a regular dinner meeting on Monday of finance ministers from the 13 countries sharing the euro.

"This unusual move should be seen as an attempt to add political weight to help smooth the discussion of his plan to delay by two years the elimination of the public deficit in France," said Bank of America economist Gilles Moec.

In addition to making his case for pushing back the previous government's commitment to balance the state accounts by 2010, Sarkozy is also due to flesh out his plans for giving a higher political profile to the euro zone.

However, both initiatives could prove to be contentious, especially with Germany, which is making big efforts to balance its books and is suspicious of Sarkozy's push for more "economic governance" for the euro zone.

More time

Sarkozy wants more time to rein in the French deficit in order to launch a series of tax cuts aimed at jolting the French economy with a growth "shock", but the move risks reversing the deficit's current downward trend.

If the French deficit starts rising again, it could soon break an EU rule requiring fiscal shortfalls to be kept to less than three percent of output, which could get Paris in trouble with its European partners.

A deterioration in the French accounts would be all the more galling for Germany because Berlin is working hard to stamp out its deficit even before the 2010 deadline that all euro zone countries agreed to target in April.

Firing a shot over Sarkozy's bow, German Finance Minister Peer Steinbrück warned on Wednesday: "If France were to drop the medium-term objectives that we all developed together, including France, then we'd have a problem."

The European Union's Portuguese presidency and European Central Bank have also warned against breaking commitments on reining in public finances.

Interventionist?

While Sarkozy faces a rough ride over his fiscal plans, his push for more "economic governance" in the euro zone is only slightly less controversial given his past attacks on the ECB's monetary policy and calls to devalue the euro.

Sarkozy has frequently criticized the central bank's focus on inflation and wants a higher profile for the Eurogroup of finance ministers to act as a counterweight, much to the concern of Germany, which is deeply attached to the ECB's independence from politics.

He has also called for a review of the euro zone’s currently lax and relaxed approach to the euro's strength, which he says is undermining the competitiveness of France's exports.

"While it is clear that the French external sector has performed poorly, these problems have been fairly specific to France, reflecting an underlying lack of competitiveness, rather than an over-valued currency," said Capital Economics analyst Jennifer McKeown.

Mr. EU?

The looming clashes over economic policy come as Sarkozy tries to carve out a new leading role for himself and France on the EU stage after French voters plunged the bloc into political uncertainty two years ago by rejecting the EU's draft constitution.

At his debut EU summit last month in Brussels, he went out of his way to be instrumental in brokering a deal for a new treaty reforming the Union's underlying rules.

However, he also courted controversy by getting the importance of "free and undistorted competition" in the new treaty downgraded to the alarm of free-market friendly countries like Britain.

Although Sarkozy managed to ease the free-marketeers' concerns that the move would not weaken the legal basis for EU competition policy, some antitrust lawyers and professors still have doubts.