Juncker Backed by France to Remain Eurogroup Head

By Sandrine Rastello and Simon Kennedy

Sept. 10 (Bloomberg) -- Luxembourg's Jean-Claude Juncker will be nominated by France to represent finance ministers from the 15- nation euro area for a third term, a French official said.

Juncker, 53, who doubles as his nation's premier and finance minister, will be proposed by French Finance Minister Christine Lagarde when European policy makers convene on Sept. 12 in Nice, France, an official from the French Finance Ministry told reporters in Paris today on condition he not be identified. France currently holds the rotating presidency of the European Union.

Juncker has served two terms as head of the so-called eurogroup since 2005, initially using the post to demand the European Central Bank and its president, Jean-Claude Trichet, do more to boost economic growth before more recently backing the ECB's inflation fight as consumer prices jumped by the most in 16 years.

``If all 15 finance ministers agree to extend my term, I won't say no,'' Juncker told the Luxemburger Wort newspaper on Sept. 3. It ``isn't a personal decision.''

Finance ministers from the euro region convene almost every month and their chairman represents them at international meetings, such as those of the Group of Seven, and at press conferences. He also is entitled to attend meetings of the ECB's governing council, with Juncker last doing so in July.

Longest-Serving Leader

Juncker is Europe's longest-serving leader and his new term may come as a personal disappointment after he emerged as a candidate to become the first president of the EU. That position would have been created from Jan. 1, 2009, under the Lisbon Treaty, until it was derailed by Irish voters in a June referendum. France may suggest Juncker serves less than a two-year term as chair of the eurogroup and that the position will cease to exist if the treaty is eventually passed, the official said.

The gatherings of the eurogroup have been a source of tension ever since the French called for EU finance ministers to act as a ``counterweight'' to the ECB in the 1990s. Germany, keen to preserve the ECB's independence, agreed to set up the panel as long as it remained informal.

At first, the job of leading the panel rotated every six months. Juncker, like Trichet one of the negotiators of the 1992 Maastricht Treaty that paved the way to the euro, took over as the first two-year chairman in 2005 to give the panel a stronger voice.

ECB Criticism

He first used the bully pulpit to criticize the ECB, urging it to have a closer relationship with governments and to cut interest rates to spur growth. He was usually rebuffed. In November 2005 he warned a ``fragile economic recovery in the EU mustn't be threatened by un-thought-out interest-rate steps,'' only for the ECB to raise rates days later for the first time since October 2000.

Trichet also ignored Juncker's push for closer links between politicians and the independent central bank and in June 2006 claimed the mantle of ``Mr. Euro'' for himself, noting it was his signature on the region's currency.

More recently, surging inflation persuaded Juncker to increasingly back the ECB even as it raised its benchmark rate to a seven-year high of 4.25 percent in July amid signs of slowing economic growth.

After that shift, Juncker said the Frankfurt-based bank ``was right to stress'' the importance of anchoring inflation expectations.

`Outstanding Job'

``Let's avoid putting the ECB on trial,'' he said in February. ``From the start it has done an outstanding job, also in the way it dealt with the market volatility during the summer of 2007.''

In May he called inflation a ``major concern'' because ``ordinary people are suffering more and more from increases in oil prices.'' A month earlier he noted ``those living on 300, 400, 500, 600, 700 euros can't live with runaway inflation.''

Trichet has welcomed the support, acknowledging in April that he felt less ``isolated'' in his effort to tame prices.

Still, Juncker has continued to highlighted the weakness in the European economy, telling the European Parliament's economic and monetary affairs committee today that there is a ``risk of a technical recession in Europe'' in which the economy contracts for two straight quarters.

``Economic activity has slowed down considerably,'' he said in Brussels.

To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net.