Christian de Boissieu, chairman of the Conseil d'Analyse Economique at the office of French Prime Minister François Fillon, does not believe Europe will go back into recession this year despite the fact that the economic recovery is indeed fragile.
"There is a recovery, a rather moderate one, but I don't think we will go back to a recession. The rebound is moderate and I believe we have to boost potential growth," he tells The Times Business in an interview.
Prof. de Boissieu, who is de facto economic adviser to Mr Fillion, was in Malta last week where he gave a talk on Europe's economic exit strategy.
He believes that in the aftermath of the global economic there is potential for growth in Europe of between 1.5 per cent and 1.7 per cent.
"However, the emerging markets are growing very fast, China is close to 10 per cent and Latin America is doing well. The US could see growth of close to three per cent this year."
Europe, he points out, must avoid going down to second league and prevent the rise of a de facto G2 - the US and Asia.
"Europe must be Keynesian in facing this crisis and we must also become 'Schumpeterian' (Alois Schumpeter was an Austrian economist in the early 20th century), that is we have to further supply-side conditions and policies, improve the competitiveness of our economies and boost potential growth and actual growth, in order to stay alive from an economic point of view," he says.
Prof. de Boissieu says the French government is attaching great importance to innovation, research and development, education, universities and the growth of SMEs, which he calls "Schumpeterian" policies.
"The Chinese are growing in the technological frontier, they could soon be at the same level as us and they are improving their education system. We cannot compete with China and India through wages and if we want to be competitive we have to push forward the post-Lisbon Agenda, which is now called Europe 2020.
"Europe failed to reach its Lisbon Agenda targets but cannot fail a second time otherwise it is going to be in a rather difficult economic situation with a lot of geopolitical implications."
He says he is preoccupied by the situation in Greece but acknowledges the EU agreement adopted is a "pragmatic" one which involves both the EU and the IMF.
"I firmly do not agree that Greece will pull out of the eurozone, even if German Chancellor Angela Merkel hinted at this a couple of weeks ago. This is not credible and is not a scenario envisaged in the Maastricht Treaty. Greece is important but what is also important is the contagion effect on some other EU countries such as Spain and Portugal.
"It is important that market speculation is addressed by the EU and that precise details are given about how the Greek situation is to be tackled as well as how the Greek government is going to deal with its fiscal problems.
"We have to draw some lessons from this crisis and we have to complement the Maastricht and Lisbon treaties with some de facto mechanisms in order to improve the economic governance of Europe," he says.
Did he believe in greater European economic integration?
"As far as the eurozone is concerned we have to complement the existing rules with some other mechanisms compatible with the Maastricht and Lisbon treaties. I do not want to remove the clause in the Maastricht Treaty which states that the European Central Bank cannot bail out a eurozone country. In fact the ECB has not at all been involved in the Greek crisis and the package adopted for Greece is completely compatible with the Maastricht Treaty and Lisbon Treaty.
"My view is that we have to improve the political and economic governance of Europe and the eurozone. Mrs Merkel, for example, said that the budgetary rules should be tightened for the stability and growth pact. Before tightening the rules I would say that first we have to come back to the limits which are in the existing growth and stability pact - the three per cent deficit figure and the 60 per cent debt ratio figure. Most eurozone countries are far off from these figures."
Did he believe these figures should be re-visited?
"No, what I am saying is that we have to have a debate between us, possibly to re-confirm these rules. I am not pushing for less strict rules, and I am not opposed to what Mrs Merkel said, but given the fact that the European Commission last year and this year put the growth and stability pact on hold, due to the exceptional circumstances associated with the crisis, I think it will take some time for us and everyone to come back to the three per cent and 60 per cent limit. France is committed to return to those limits by 2013 but what about Greece? We will see," he says.
Prof. de Boissieu says that Europe has a two-level system, the EU and the eurozone. It was the eurozone, he points out, which come up with the rescue package for the banks after the collapse of Lehman Brothers in 2008 and this was then approved by the 27-member EU.
"For me the debate is about strengthening the economic governance of the EU - there will be much resistance from some countries - but we need to deal with growth, cutting public debt and competitiveness. I was struck by the discussion about the optimum currency in light of this Greek crisis. My view is that there is no optimum currency area. We need to think about how to cope with asymmetric shocks, and the intra-EU and intra-eurozone situation. It is a matter of having the right tools," he says.
Asked whether he thinks the recent global financial and economic crisis changed the nature of capitalism and vindicated the French economic model, Prof. de Boissieu says he hopes the international community will be able to draw the relevant lessons from the crisis, adding that the window of opportunity to improve the capitalist system will not last forever.
"It is true that in France we believe - perhaps more than some Anglo-Saxon countries - in regulation - and we believe in what the Germans call the social market economy. Yes, we have to rely on markets but markets have to be somewhat regulated. We need better regulation, rather than more.
"During the banking crisis after Lehman in October 2008, during the French EU presidency, France and Germany were the leading proponents within the G20 for banking reform. Most of the proposals came from continental Europe during the G20 summits in London and Pittsburgh last year, which were also supported by the UK and the US.
"After the fall of the Berlin Wall, capitalism lost its external enemy. However, since the Enron scandal in 2001 and following other corporate scandals, we have had to face some big internal challenges. Sometimes it is more difficult to face challenges such as greater transparency, how to limit conflicts of interest and how to improve macro governance and corporate governance than deal with an external enemy," he explains.
France fared better in the global recession than most European countries, yet some of its economic statistics for 2009 are quite worrying. The deficit is 7.5 per cent, the unemployment rate is 9.7 per cent and debt ratio stands at 76 per cent. How committed is the French government to economic reform?
"I expect the public sector deficit to start being reduced next year. The question is how. There are four possibilities. The first is a rebound in inflation which I don't believe will happen over the next two years. The second is a rebound in growth which will increase tax revenue this will not be sufficient to close the gap. This year we could possibly have a growth of about 1.4 per cent.
"The remaining options are to increase taxes or reduce expenditure. Given the fact that France has a rather high tax ratio of about 45 per cent, which is about five points above the EU average, my view and I think the view of the French President and government is to rule out any tax increases."
In the present economic circumstances, he explains, President Sarkozy decided to delay the introduction of a domestic carbon tax. However, he adds: "France is still keen to fight against climate change."
The only option left is to reduce public expenditure, he says.
"The reform of the state, of local authorities and the social security system - all sensitive issues - are the best way of adhering back to the Maastricht criteria. We must carry out structural reform to increase growth and we cannot be passive, we must be active.
"This year our main priority is pension reform. Our system is not sustainable in the long-term. We will keep the basis of the pay-as-you-go system but we must discuss the various parameters of the system with the social partners. The retirement age is also up for discussion, just like in many EU countries. Incentives can be given for people to remain in the workforce after the age of 60."
Prof. de Boissieu explains that France's main problem is unemployment, in particular youth unemployment, "and this could increase this year, in spite of an economic rebound".
"We must find new ways of reducing unemployment. Labour market reform and introducing more flexibility into the labour market is also a priority and we are looking at the Nordic model. We should come up with some concrete proposals in about three months."
He says it's difficult to pinpoint exactly why President Sarkozy's ruling UMP fared so badly in the recent French regional elections but insists it's normal for the opposition to do well in mid-term elections.
"The difficult social and economic situation as well as the unemployment rate obviously had an effect. Also, some people believe the French like co-habitation, in this case between the regions and the national government."