Cameron Finds Unlikely Economic Bedfellow

It might seem unlikely, but David Cameron has come out in support of the new French socialist president's controversial idea for a euro growth pact.

He did not say so much explicitly, of course - the last thing he wants is to set up a full-scale confrontation with the German Chancellor, Angela Merkel.

But, in perhaps the most unexpected element of a key speech on the economy, the Prime Minister indicated his support for the centrepiece of Francois Hollande's growth pact - so-called "project bonds".

In fact, if you read between the lines, Mr Cameron even seemed to hint that these bonds might well make sense for Britain as well.

Before we go further, a bit of explanation is in order.

At the core of the existing euro rescue plan is something the Germans insisted on: a "fiscal pact" which imposes rules on euro members to ensure they don't overspend or over-borrow in the future (and get into the kinds of economic scrapes Greece and Spain have).

One of the centrepieces of President Hollande's electoral campaign was to persuade the Germans to change this plan into (or at the very least add to it) a "growth pact".

And the main policy prescription included in Mr Hollande's conception of a "growth pact" are so-called "project bonds".

These essentially involve the government taking the riskiest stakes in big new construction and infrastructure projects (roads, rail, schools, hospitals), enabling private sector investors to pour money in without fear of losing it all.

It is actually not so different to Britain's Private Finance Initiative (PFI), but with a Gallic flavour.

In that light, it is perhaps less surprising than it seemed at first to hear the Prime Minister come out in favour of Mr Hollande's scheme.

"I welcome the opportunity to explore new options for such monetary activism at a European level, for example through the French president's ideas for project bonds," Mr Cameron said.

But it is nonetheless interesting that he should have chosen to support the French scheme explicitly - not merely an olive branch to the new socialist president, but a challenge to the German mindset that the solution to the euro crisis will come purely through fiscal discipline.

Neither will the rest of the speech go down that well in Berlin.

There were calls for the European Central Bank to do more in the way of "monetary activism", which could mean more quantitative easing and for the continent to explore the introduction of Eurobonds and Germany must accept higher inflation.

All of these are complete anathema to the official German standpoint.

But those references to Mr Hollande are not interesting merely in what they tell us about the euro. There is also an intriguing hint about a change in domestic policy.

The PM acknowledged that the UK growth plan also needs more work.

He said: "I want us to go further, so I've asked the Treasury to examine what more we can do to boost credit for business, housing and infrastructure.

"We've taken the tough decisions to earn those low interest rates - so let's make sure we're putting them to good use."

Clearly the implication is that there will be some new measures announced by the Treasury in the coming weeks and months to try to boost UK growth.

The Government is currently reviewing the PFI system, leaving the whole infrastructure sector in limbo - not helpful when you are reliant on big projects to try to yank Britain out of recession.

So given all of the above, it is worth contemplating whether what all this portends is a domestic version of project bonds - with a UK accent.