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Easy money, budget reform, more investment are keys to eurozone growth: French finance minister

A more expansionary monetary policy, a "balanced" approach to budget reform and higher investment are the keys to boosting growth in the eurozone, according to French Finance Minister Michel Sapin.


A MORE expansionary monetary policy, a "balanced" approach to budget reform and higher investment are the keys to boosting growth in the eurozone, according to French Finance Minister Michel Sapin.

Speaking through an interpreter in an exclusive interview with BT last Friday, Mr Sapin acknowledged that growth and inflation in the eurozone were "too low" but added that "this is a situation that will not last".

Among the steps being taken to tackle the problem, he noted that the European Central Bank (ECB) has embarked on a course to keep interest rates down; this has already had an impact on the exchange rate of the euro, "to more accurately reflect reality". These measures will continue, Mr Sapin said.

Last November, the European Commission projected eurozone growth at 0.8 per cent in 2014 and one per cent this year. By OECD estimates, economic growth in France was 0.4 per cent last year and is forecast to rise to 0.8 per cent in 2015. Inflation in the eurozone fell to minus 0.2 per cent year-on-year in December, marking the first time since 2009 that it has turned negative.

With regard to the upcoming meeting of the governing council of the ECB on monetary policy this Thursday at which it is expected to announce new measures, Mr Sapin said: "The ECB . . . will make its decision independently. But the language it is using is very clear: it aims to achieve very low interest rates and a realistic exchange rate. This is what we need to maintain over the long term."

Mr Sapin would not say whether he thought the ECB would step up its policy of quantitative easing (QE) by committing to buy more bonds from eurozone member entities. "Quantitative easing is not the only tool available. The ECB has a lot of different tools at its disposal," he said.

On budgetary policy, Mr Sapin stressed the need for a "balanced approach" across the eurozone to bring down deficit and debt levels "at a pace which allows growth to continue". "Too much austerity has hindered growth."

"Some countries have reached a position where they are doing okay, but others still have more work to do," he said.

Mr Sapin pointed out that another driver of growth in the eurozone would be more investment. Under the so-called Juncker plan unveiled by European Commission president Jean-Claude Juncker last November, European authorities will create mechanisms to catalyse investments of around 300 billion euros (S$460 billion) from both the public and private sectors.

"This has been decided in principle," Mr Sapin said. "There are still discussions about the mechanisms through which it will work. The initial investments could start this year in sectors like energy, the environment, transport, the digital sector and research and development." He added that France will also be continuing with structural reforms - notably in the labour market, which is widely viewed as being overregulated.

While in Singapore, Mr Sapin met with Prime Minister Lee Hsien Loong as well as Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam. He also signed a new tax treaty between France and Singapore. "We have identified some double taxation issues that we have now eliminated with the new treaty," he said. He added that the new treaty will also deal with tax avoidance, "which is negative and harmful, especially for France".

In addition, it will enable the automatic exchange of information between tax officials in the two countries, to help combat tax fraud.

Mr Sapin also talked about the French government's response to the terrorist attacks in Paris on Jan 7 and 8, in which a total of 17 people were killed - including eight journalists of the French satirical newspaper Charlie Hebdo.

"In France, we are committed to fight against all forms of discrimination - whether along the lines of race, religion or colour. This is one of France's core values," he said. "We will not compromise when it comes to dealing with intolerance towards any religion, be it Jewish, Muslim or any other. We will not compromise on people's freedom to practise their religion."

But he acknowledged that his government needed to do more to deal with the problems of some young people in France, who feel alienated and excluded from mainstream society and may not share its values. "There are a lot of young people today who think they know about French Republican values from what they learn online rather than from what they learn in school," he said. "We will step up efforts to devise more inclusive policies for these young people."