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French retread path to Berlin finance ministry

AFP/The Local · 20 Oct 2014, 08:43

Published: 20 Oct 2014 08:43 GMT+02:00

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After a massive sell-off on European stock markets last week triggered by a flurry of disappointing economic data, French Finance Minister Michel Sapin and Economy Minister Emmanuel Macron are to meet German counterparts Wolfgang Schäuble and Sigmar Gabriel in Berlin.

It will be Macron's second trip to Germany in a month following a visit at the end of September with Prime Minister Manuel Valls.

Boosting investment and growth are the official topics on the agenda but France's public finances as well as Germany's investment record will also likely be discussed.

On the eve of the visit, Sapin and Macron called on Germany to increase investment by €50 billion in the next three years to match the amount Paris is seeking to save from public spending.

"Fifty billion euros savings for us and 50 billion of additional investment by you - that would be a good balance," Macron was quoted as saying by the Frankfurter Allgemeine Zeitung in pre-released quotes in German for Monday's edition.

"It's in our collective interest that Germany invests."

Recent data has suggested that the German economy - traditionally Europe's growth engine - is stalling, threatening to pull the eurozone back into recession and put the brakes on the global recovery.

However, the French may find an unsympathetic ear in Social Democratic Party finance minister Sigmar Gabriel, who told Bild on Monday that "Germany is not in a downturn," and rejected the idea of an investment programme to restart the economy.

Germany sticks to its script

France, grappling with sky-high unemployment and a ballooning budget deficit, has been spearheading a campaign for Germany to soften its stance on fiscal austerity and loosen its purse strings to provide much-needed stimulus.

Both Italy and France have stepped up their calls for the European Union to switch course to focus on growth, not on balancing budgets.

But these demands are being batted away by Chancellor Angela Merkel, who insists the way out of the crisis is for all eurozone states to stick to agreed rules on the size of their deficits. It is a simmering row that could threaten to come to a head at an EU summit in Brussels at the end of the week.

hollande.jpg" style="width: 468px; height: 290px;" title="Chancellor Angela Merkel and President Francois Hollande disagree on how to boost European economic growth. Photo: DPA" />

While Berlin and Paris agree that something urgently needs to be done, the two nations still appear to differ on what exactly the solution is.

EU budget rules a sore point

French President Francois Hollande's government has refused to approve further spending cuts needed to meet the EU's budget deficit target before 2017, arguing that more austerity would only further slow a stagnating economy.

But Germany is adamant that all member states stick to the EU's budget rules and press ahead with much-needed structural reforms.

Berlin is also concerned about the lack of progress in Paris in getting its finances in order and in reforming its economy.

Nevertheless, it has refrained from making any public comment in recent weeks on the French budget so as not to antagonise its key ally and trading partner.

Spiegel reported that Germany was helping France to draw up a pact with the European Commission on deficit reduction and structural reforms to win Brussels' approval of its 2015 budget.

On Sunday, Macron said he was "absolutely sure" that Brussels would not veto the French budget, which is expected to post a 4.3-percent deficit in 2015 - overshooting the 3.0-percent ceiling set by the EU.

The deficit -- the shortfall between revenue and spending -- is not expected to drop to that level until 2017.

The EU's executive branch has around two weeks to decide whether countries' budget submissions break the rules.

The Commission has new powers to enforce the deficit limit, and could for the first time send the budget back to Paris for changes.

Both capitals have tasked economists with drawing up a catalogue of measures which could revive growth and the measures will be aimed at both Germany and France.

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AFP/The Local (news@thelocal.de)

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