growing pains

German Demands Grow for French Reform

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France and Germany continue to butt heads on economic growth.
  • Why it matters

    Why it matters

    Europe is searching for ways to spur growth, and economic giants Germany and France are at odds about how to do it.

  • Facts

    Facts

    • The finance and economics ministers of Germany and France met this week in Berlin.
    • They agreed to develop a plan and present it on December 1.
    • France wants Germany to invest €50 billion ($63.7 billion) more in public works over the next three years.
  • Audio

    Audio

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There are moments on the international stage when diplomatic politeness takes a back seat to the need to send a clear message.

One of these rare opportunities arose when the finance and economics ministers of Germany and France met in Berlin on Monday to discuss how to spark growth in Europe, which is in danger of falling back into recession. The ministers announced they would develop a plan and present it at the German-French economic summit December 1.

The annouced plan comes amid growing concerns in German industry.

“We want to see a strong and politically stable France,” said Markus Kerber, managing director of the Federatin of German Industries. “They need to strengthen their economy and create jobs to be able to return to growth.”

Germany is not responsible for France’s economic problems, and the French must come up with their own solutions, Mr. Kerber said.

“The austerity program and reform packages of the French government are an important step in this direction,” he said, adding the nation must get back on track  “against all resistance.”

“We will neither break the rules, nor do we want to change them.”

Michel Sapin, France's Finance Minister

Diplomatic reserve sounds different – and the demand to the French is clear: Get your economy moving and do it quickly. But the French, for their part, are not exactly reserved either.

French economics minister Emmanuel Macron, for example, wants Germany to invest €50 billion ($63.7 billion) more in public works over the next three years. German officials are irritated by the demand even though it is understandable to some.

“Our companies want to invest,” Mr. Kerber said. “But what we urgently need is upfront investment by the state in major infrastructure projects, like modern road construction.”

So does the German goverment. “We want to increase investment,” said Wolfgang Schäuble, Germany’s finance minister and a member of the Christian Democratic Union, as the ministers’ joint proposal was announced.

The focus at this week’s meeting was Franco-German relations. Germany’s ruling left-right coalition has leveled withering criticism at France because of the country’s plans in the coming year to incur more debt than the E.U. economic stability pact allows.

For months, France has been trying to convince Europe to implement measures other than just austerity to generate economic growth. The conflict about austerity and growth has been a thorn in the side of Franco-German relations. The friction is intense.

Mr. Macron and Michel Sapin, the French finance minister, initially invited German journalists to a background discussion after Monday’s news conference. But the meeting was cancelled, presumably because the French figured out that it would not go down well with their German counterparts.

 

Investments in France-Germany-USA-OECD-average-Oct-22-2014

 

Before the news conference, the four ministers met in Mr. Schäuble’s office for an hour and a half  with no aides present.  The discussion apparently went better than expected. The ministers displayed unity at the news conference.

“Together, we are determined to do everything we can to increase investment within the framework of our financial policy,” Mr. Schäuble said.

In response to a journalist’s question, Mr. Macron said, “I didn’t demand or request anything.”

Sigmar Gabriel, Germany’s economics minister, struck a conciliatory tone. He said France’s call for €50 billion in additional investment over the next three years was in line with guidelines of the Organization for Economic Cooperation and Development (OECD). The organization is calling on industrial countries to increase their investment quota to 20 percent of gross domestic product. That’s what Germany would be achieving with both public and private investment.

A squabble broke out between Mr. Gabriel and Mr. Schäuble about which of their parties, the Social Democrats or the Christian Democrats respectively, took the rules of the stability pact more seriously.

Mr. Sapin praised the pact. “We will neither break the rules, nor do we want to change them,” he said, adding the pact was flexible enough to combine savings and growth.

Mr. Macron said the four ministers agreed to jointly present an investment program with a list of projects for Germany, France, both of them together, and Europe as a whole at the meeting December 1.

This is good news for industries in both countries. The German and French industry associations have long demanded more investment to overcome feeble growth.

“We are calling for the government to draw up a clear road map to safeguard Germany as a sustainable industrial location up to 2017 and beyond,” Mr. Kerber said.

France, he added, urgently needs to tackle the structural problems of its economy.

 

Jan Hildebrand is Handelsblatt’s deputy Berlin bureau chief. He covers politics and finance from Germany’s capital, Donata Riedel has been at Handelsblatt since 1995, initially as an editor for companies and markets focusing on telecommunications and now as a Berlin correspondent focusing on finance politics. To contact the authors: j.hildebrand@vhb.de or d.riedel@vhb.de

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