BERLIN – Germany and France recognize that their co-operation is key to overcoming Europe’s persistent economic crisis, but comments Thursday by the leaders of the continent’s No. 1 and 2 economies suggested they still have diverging priorities.
French President Francois Hollande argued that the 17-nation eurozone should integrate more, calling for greater pooling in the long run of political and financial resources. He favours easing back on debt reduction measures to help the economy grow.
Chancellor Angela Merkel, who has rejected the idea of pooling European debt, says governments must first work on getting their finances in order and making their economies more competitive through reforms. She stressed Thursday the importance of reforms in France.
“What we need above all is a common understanding in Europe — and there unfortunately isn’t one yet — of what actually makes us strong and where growth comes from,” Merkel said at a European policy forum in Berlin.
Merkel and Hollande spoke a day after new figures showed that the eurozone contracted for the sixth straight quarter in the January-March period, its longest-ever recession, with nine of 17 member countries in recession. France was the latest addition to that list; Germany barely grew.
Merkel’s centre-right government has faced persistent criticism for favouring a crisis response that focuses on debt reduction.
Officials in Berlin insist that budget austerity has to be part of the answer, and that doing so doesn’t conflict with growth in the longer-term. They also stress that structural reforms, for example to make labour markets more flexible, are just as important.
Hollande, a Socialist, said eurozone countries should combine their political and financial resources to eventually create a common government with a budget and even the capacity to borrow. Germany has so far dismissed pooling public finances for fear that it would end up paying for financially weaker countries’ mistakes.
“If Europe doesn’t move it falls over, or rather, it disappears from the map of the world,” Hollande said at a press conference in Paris marking his first year in office.
Some officials in Hollande’s party have criticized Merkel, arguing she is unwilling to consider faster integration because she faces an election in September — the idea is not popular with Germans.
Hollande took pains to say that the dispute with Merkel was political, not personal.
“We have to find a balance between budgetary rigour and support for growth,” Hollande said, adding that the debate with Germany “is a respectful dialogue.”
“We don’t have the same convictions but we have the same responsibilities,” he said.
Merkel said that France is of “existential significance” to Europe and the eurozone. “So it is the wish of every responsible German politician, and of course mine too, that France approves the things that are necessary to achieve French competitiveness so that France can be successful,” she said.
At the same conference earlier Thursday, Merkel’s finance minister said there were limits to what the world’s central banks could do to solve economic problems and warned there was too much money flooding global financial markets.
U.S. and Japanese authorities have already cut their interest rates to near zero. The European Central Bank this month cut its main rate to a record-low 0.5 per cent, but companies in parts of Europe are still struggling to borrow at reasonable rates.
Finance Minister Wolfgang Schaeuble argued that medium-sized companies’ financing difficulties are a result of a wider crisis of confidence and said that even zero interest rates ultimately wouldn’t help.
“Monetary policy can’t solve the problems that have to be solved by financial and economic policy, structural policy,” he said, adding that the ECB is doing its job well but can’t be expected to do politicians’ work.
More broadly, Schaeuble said, “we have much too much liquidity from the world’s central banks.” He insisted that “when we have so much liquidity … this is a placebo, we do not solve the problems.”
Greg Keller and Sylvie Corbet in Paris contributed to this report.