Reuters: Regulatory News: UPDATE 2-As Europe tensions rise, French and German leaders clash

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UPDATE 2-As Europe tensions rise, French and German leaders clash Jun 15th 2012, 13:19 Fri Jun 15, 2012 9:19am EDT * France, Germany trade insults as euro crisis deteriorates * Merkel criticises French economy after jibes from Paris * Hollande and Merkel on collision course over euro crisis By Annika Breidthardt and Daniel Flynn BERLIN/PARIS, June 15 (Reuters) - Germany's Angela Merkel criticised France's economic performance on Friday in a war of words with its new Socialist President Francois Hollande over how to tackle Europe's deepening debt crisis ahead of a pivotal election in Greece. Describing her own country as Europe's "stabilising anchor and growth engine", the centre-right chancellor told German business leaders that Europe should talk about the growing gap between the bloc's two biggest economies and traditional allies. The unusual rhetoric comes after Hollande met with German centre-left opposition leaders this week and unveiled economic reforms, including a partial lowering of the pension age, that Berlin fears will only deepen France's economic problems. The rift between the euro zone's two big powers comes at a crucial time for the bloc, which could find itself scrambling to avert a humiliating breakup as early as Sunday if a radical left party wins the vote in Greece. Merkel said in her speech that only a decade ago Germany trailed or was at best even with France in traditional measures of competitiveness, such as unit labour costs. Now, she said, Germany had opened up a "growing" lead, saying this was an issue "that must be discussed in Europe, naturally." Tensions have risen so much that French Prime Minister Jean-Marc Ayrault felt moved to deny that his country was trying to form a united front with Italy and Spain against Merkel and her drive for austerity in the single currency zone. It bears out the fears voiced after Hollande's election last month that the Franco-German partnership may no longer thrive as it did under his predecessor, Nicolas Sarkozy, whom Merkel backed during the campaign, refusing to meet with the Socialist. Sarkozy's conservative UMP, now in opposition, accused the ruling French Socialists of feeling "obliged to sabotage" the Paris-Berlin dialogue because it disagreed with Merkel. UMP national secretary Camille Bedin criticised Ayrault for advising Merkel to "take things seriously and courageously" and French Industry Minister Arnaud Montebourg for saying Merkel's "ideological blindness" was to blame for having "driven seven countries from the euro zone's 17 into recession". In addition to the pensions move, Hollande's government has announced plans to increase the cost for companies of laying off workers. FRENCH-GERMAN POKER Merkel reiterated her view that issuing new debt to finance growth is not sustainable and she again ruled out mutualising debt or issuing joint euro bonds to tackle the crisis - a stance directly opposite to that taken by Hollande. Rebuffing international pressure on Germany to underwrite the debts or bank deposits of weaker euro zone economies, Merkel warned earlier this week against overstraining her country's resources, saying: "Germany's strength is not infinite." Hollande has spoken out in favour of euro bonds and insists Europe needs to do more to revive growth to offset its German-inspired focus on tackling budget deficits and public debt. His positions are shared by Germany's centre-left Social Democrats (SPD) and Greens, who have been emboldened by his victory to ramp up their opposition to Merkel ahead of next year's federal elections, when she will seek a third term. SPD leader Sigmar Gabriel said after meeting Hollande and Ayrault in Paris on Wednesday there was "no crucial point" on which his party and the French government disagreed, including the need for a tax on financial transactions in Europe. The meeting at the Elysee palace, with the SPD's three main leaders, was in itself a break of protocol as a new president would normally host a visit by the chancellor before there was any question of meeting the German opposition. This could have been Hollande paying Merkel back for her refusal to meet him when he was running against Sarkozy, but it was also seen as showcasing his rejection of the policy ideas of the "Merkozy" power couple that dominated the euro zone. "It's all part of the big poker game taking place between France and Germany at the moment," said political analyst Jacques Reland of the London-based Global Policy Institute. France's first Socialist president in 17 years is on track to win a clear parliamentary majority on Sunday, adding the lower house to its control of the Senate, which would give the left more power than it has ever held in France. Hollande may be able to claim a victory if he gets Berlin's agreement at a June 28-29 EU summit on growth and job-creating measures to accompany the fiscal pact, which both the French and German parliaments have yet to ratify. Merkel has accepted, with varying degrees of enthusiasm, four measures pushed by Hollande that were already on the agenda before his election: more capital for the European Investment Bank, reallocation of EU regional aid funds, project bonds to fund infrastructure and the transaction tax. Link this Share this Digg this Email Reprints

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