[Skip to Content]

Register to receive the OMFIF Daily Update and trial the OMFIF membership dashboard for a month.

* Required Fields

Member Area Login

Forgotten Password?

Forgotten password

Hollande's déjà vu touch

Hollande's déjà vu touch

Sapin's past skirmishes with Germany likely to return 

by David Marsh

Mon 7 Apr 2014

President François Hollande has established a new French government line-up that combines strong elements of déjà vu with a chilling impression of accidents waiting to happen.

Highly unusually for a key post in a leading economy, France has brought back to the finance ministry a politician who held the same job 21 years previously – Michel Sapin, 62, a veteran of Franco-German currency unrest in 1992-93 that formed a politically fraught staging post towards monetary union.

Sapin, who has taken a relatively orthodox line on financial and monetary policies in recent years, was hitherto employment minister in Hollande’s ill-starred administration since his presidential election win two years ago.

Sapin moves into the front line backing Manuel Valls, the new French prime minister, in seeking greater leeway from Germany and the European Commission over European targets for reducing France’s budget deficit, where Paris is once again lagging behind the goal of 3% of GDP.

The Berlin government is resisting the French plea for special treatment, making the case that if other still-more-struggling countries can show budgetary discipline, then France should follow suit.

There is widespread belief in Europe that any Berlin-Brussels weakness over the French campaign for leniency would be a mistake of similar gravity to the suspension of budgetary targets by France and Germany in November 2003. Some see this as one of the triggers for the euro bloc’s slow transition to monetary crisis five years later.

Sapin played a key part in manoeuvrings between France and Germany in September 1992, when strong pressure by German Chancellor Helmut Kohl on the statutorily-independent Bundesbank staved off a French franc devaluation in the exchange rate mechanism (ERM), the forerunner of monetary union.

Sapin had left Washington meetings at the International Monetary Fund on 22 September 1992 – a week after Britain and Italy ignominiously left the ERM – and was waiting at Dulles airport for a delayed Concorde flight to Paris ready to announce devaluation the next day.

Sapin was saved by Kohl’s tenacity in talks with Mitterrand in Paris on the same day when the German leader – apparently breaching the Bundesbank Law which forbids the central bank from taking instructions from politicians – asked the Bundesbank to act to protect the franc. Leading Bundesbank officials later denied that Kohl or they had broken the law, saying simply that Kohl had exerted 'persuasion' on them.

Sapin’s retro-look elevation to finance minister means that a trio of heavyweights – Hollande himself, Sapin and Laurent Fabius, the Paris foreign minister who was France’s youngest-ever prime minister in 1984-86 and the Socialist party’s first secretary in 1992-93 – all have first-hand memories of bruising monetary encounters with the Germans in the 1980s and 1990s. This is likely to come to the fore in further skirmishes with Berlin in coming months.

Hollande has attempted to placate international scepticism about his brand of contour-free policies with Spanish-born Valls’ appointment as a notorious free-marketer and Atlanticist, branded as wholeheartedly supporting a new pro-business tilt in Hollande’s thinking. On the other hand, Hollande has appeased left-wingers by promoting outspoken Arnaud Montebourg as the new economy and industry minister, as well as Ségolène Royal as environment and energy minister and Benoît Hamon as education minister.

Montebourg, in his previous junior ministerial role, has been a fierce protector of French national interests, arguing that Brussels officials policing European competition and state aid policy are 'talibans… fundamentalists who apply the [legislative] texts blindly to the detriment of European interests.' German worries about the direction of French policies has been compounded by a further widening of the economic gap between France and Germany since Hollande’s victory in May 2012.

French growth, although picking up steam like in the rest of Europe, has been roughly half Germany’s own lack-lustre 1% average since 2012. France’s economic showing in all other fields – including unemployment, the budget, debt and the trade and current account performance – has lagged well behind Germany’s.

Tell a friend View this page in PDF format