Euro zone is ‘solid from now on,’ French minister tells Canada

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His hosts have lectured Europe's governments to wrestle down their debt, but France's visiting finance minister, Pierre Moscovici, has another message: the euro crisis is over, it isn't coming back, and boosting growth is the continent's challenge now.

In a week of budget showdown in Washington and an Italian political crisis that threatened to again roil financial markets, Mr. Moscovici insisted in an interview with The Globe and Mail that Europe has now moved beyond the threat of catastrophe.

"There could be moments of fits and starts," he said pointing to the Italian political crisis that is threatening the survival of Prime Minister Enrico Letta's government. "But for the long term, things are stable. The euro zone is, on the whole, solid from now on."

Mr. Moscovici, as the man steering budgets in Europe's second-largest economy, is, in effect, the point man for Europe's growth party, the left-of-centre advocates of pro-growth fiscal policies who argue that strict austerity will do more harm than good.

But in Ottawa, he met a Canadian finance minister, Jim Flaherty, who has for three years warned that Europe's debt is a serious risk to the world, and who, at a G7 meeting earlier this year, declared that the weakened debt-fighting resolve of European nations is "mistaken."

Mr. Moscovici, the director of socialist François Hollande's winning 2012 presidential campaign, said there's no clash between the two ministers from obviously different political perspectives and continents. He argues that "if you look at it with a little perspective," European countries are engaged in "structural reforms and deficit reduction."

"We have a much healthier financial situation. It is healthier in Italy. It is healthier in Spain. It's being cleaned up in Greece."

His view will undoubtedly seem too rosy to the many analysts who warn there is still unfinished work in tackling precarious public finances and and overhauling banks in Europe. It's not just Mr. Flaherty, but German Chancellor Angela Merkel who differs on the need for austerity. Mr. Moscovici said Europe has other needs.

"Today, the euro zone is stable. The question we face now is how to recover our growth. There is no longer an existential question. But there is still a problem of dynamism," he said.

"That is why – because we are also committed to budget consolidation – we must move to policies that are more favourable to growth. No one has lessons to give anyone else, because our situations aren't necessarily the same."

France moved out of recession in the second quarter of 2013, posting 0.5 per cent growth, a little better than the European Union's overall 0.3 per cent. But it is, clearly, still weak. "Growth, growth, growth, jobs, jobs, jobs. That must be our obsession," Mr. Moscovici said.

France's 2014 budget, delivered last Wednesday, did include spending cuts of about €15-billion, but the measures have been modest by many economists, who argue deeper reforms are needed in a country whose public sector accounts for 57 per cent of the economy. France will miss its previously set deficit target of 3.7 per cent of the country's gross domestic product, instead posting a budget shortfall equal to 4.1 per cent of GDP.

Mr. Moscovici insists that France is still on a course to deficit reduction, projecting declining deficits, and as of 2015, a declining debt-to-GDP ratio.

But he argues that austerity can go too far – even that the meaning of the word, in French, connotes excessive belt-tightening, he said: "Austerity is a policy that goes too far, that penalizes growth. I am for seriousness. I am not for a policy that penalizes growth."

France has extensive trade and investment ties to Canada, notably to Quebec, and Mr. Moscovici's trip here was aimed in part at attracting new business investment. A Canada-EU trade agreement will allow those ties to expand, he said, and "hopefully" be concluded soon, now that key sensitive issues have been settled and "details" of an agricultural deal remain. Canadian CEOs calling for the deal to be done need "maybe just a little" patience, he said.

But another reason for the trip, like a previous visit to Sweden, is to learn lessons from Canada's restructuring of its public sector "without shattering a social model" – a task that France, unlike Canada and Sweden faces in a period of weak growth.