By Daniel Flynn
PARIS (Reuters) - France's Socialist presidential frontrunner said on Saturday he would renegotiate an EU budget treaty to include a financial transactions tax and common European bonds to stimulate growth via investment in energy, education and urban development.
Francois Hollande, who has made renegotiating the fiscal pact signed by 25 European leaders this month a central part of his campaign, also said he wanted to change the role of the European Central Bank to give it a broader mandate for stimulating growth, not just controlling inflation.
"I solemnly affirm today that I will renegotiate this budgetary treaty for the good not just of France but the whole of Europe," Hollande told a meeting of Socialist politicians from across the continent.
While he accepted the need to rebalance government finances, Hollande said the first step must be a return to economic growth which too much austerity threatened to undermine.
"This treaty is an illusion and it poses a risk... It creates the conditions for a lasting economic crisis which would only create budgetary imbalances once again," he told the crowd, including Belgian Prime Minister Elio du Rupo and the leader of Germany's opposition SPD party, Sigmar Gabriel.
The German-inspired fiscal compact would impose a cap on budget deficits throughout Europe and allow countries to be sued for flouting its rules. But several countries, including the new conservative government in Spain, have voiced concern that imposing austerity too quickly may worsen an economic downturn.
Hollande said a broad financial transactions tax - dubbed a Tobin tax after the U.S. Nobel laureate who first proposed it in the 1970s to discourage speculation - should be applied across Europe on all financial instruments, including derivatives, to fund infrastructure and development projects for growth.
President Nicolas Sarkozy, who trails Hollande in the polls by a wide margin for the May 6 runoff election, has proposed a narrower tax in France, mainly on trading in equities, saying he hoped this would inspire European partners to follow suit.
Hollande has support from Europe's left. Germany's SPD has said it would only back the fiscal compact if the government agrees extra measures like a transaction tax. Because the pact affects sovereignty, Chancellor Angela Merkel's coalition requires a two-thirds majority in both houses of parliament, making her dependent on the opposition.
In Hollande, where the government also relies on the left-wing opposition to pass European pacts, two leading Labour MPs have indicated they would block it unless the Netherlands gets more time to lower its deficits.
"European Socialists must raise their voices and say ... this treaty is not enough!" said Pier Luigi Bersani, the leader of the leftwing PD party in Italy. "Francois' challenge is shared by all of us."
FRANCE MAY START MOVE TO LEFT
With elections next year in Germany and Italy, the euro zone's first and third largest economies, Hollande says he hopes his victory could spark a swing to the left in Europe, making France as a battleground for the region's left and right.
"If a wave starts in France, it will become irresistible in the whole of Europe," he told the meeting. At present leftist parties govern only in a handful of smaller states like Belgium, Denmark and Austria, often in coalition governments.
Hollande said there was still time before the treaty was ratified to seek an amendment. In a further obstacle to its implementation, Irish Prime Minister Edna Kenny's announced last month a surprise referendum on the treaty -- though opinion polls suggest Irish voters may approve it.
With only 12 countries required to ratify the treaty before it takes effect, Hollande may have only a small window to act.
The Socialist leader said that, as part of the renegotiation, the European Investment Bank (EIB) must be made to step up its lending to fund development projects and credit to businesses. More use should also be made of EU structural funds, much of which was going to waste at present, he said.
He called for the firepower of the euro zone's permanent bailout fund, the European Stability Mechanism (ESM), to be boosted by allowing it to access liquidity from the ECB like a bank. Germany has staunchly opposed such a proposal.
"The ECB must go further in playing its role of lender of last resort," Hollande said. "I know this idea is not shared by everyone in Europe, but we must extend the mandate of the ECB. Price stability has been accomplished ... Acting in favour of growth should also be part of the ECB's mission."
Hollande said that new European funds to stimulate growth needed to be used to regenerate impoverished urban centres across the continent, finance renewable energy, and provide opportunities to a generation of young Europeans whose future would otherwise be blighted by the ongoing financial crisis.
"I want to make the youth a great European cause," Hollande told the meeting. "I can't accept that youth unemployment in Europe is around 25 percent and there is despair among a generation which is growing up. Europe must make room for its youth."
(Editing by Mark Heinrich and Karolina Tagaris)
