France ‘Biggest Problem’ in Euro Crisis, Say German Officials

France smarts at German comments despairing French economic response to the euro crisis, and media reports contending Berlin is preparing a To-Do reform list for sluggish leaders in Paris.

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PAULO AZEVEDO PHOTO / Demotix / Corbis

A poster bearing an image of German Chancellor Angela Merkel posted on a wall as riot police hold up shields during a general strike over government imposed austerity measures in Lisbon, Portugal, Nov. 14, 2012.

Given their self-appointed role as the European Union’s austerity enforcers, German leaders aren’t exactly troubled by being among the least popular figures within the crisis-rocked euro zone. That’s doubly good, given the German penchant of wrapping tough love within even tougher language—a combo now raising hackles in France after months of it ticking off debt-laden nations of southern Europe.

Officials in Paris have been stung by recent comments from Berlin targeting France as the “real problem” in Europe’s continuing debt emergency. Worse still, media reports say German government officials have asked economic advisers to identify urgent reforms the French should be applying—and presumably aren’t—to turn Europe’s second largest economy away from its slow slide towards calamity. What’s German for  ‘France sucks’?

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“Is France the New Greece?” offered the Oct. 31 headline in Bild, echoing rising German concern about France becoming the euro’s weakest and most dangerous link. That tone isn’t just coming from Germany’s petulant tabloids. Of late, even staid German figures have expressed concern that French Socialist President François Hollande has employed largely superficial measures to address France’s budget deficit, but avoided deep structural reforms German experts call vital to restore lasting health to the slumping French economy.

“The biggest problem at the moment in the euro zone is no longer Greece, Spain or Italy, instead it is France, because it has not undertaken anything in order to truly re-establish its competitiveness, and is even heading in the opposite direction,” German economist Lars Feld told Reuters Nov. 7. “France needs labor market reforms, it is the country among euro zone countries that works the least each year, so how do you expect any results from that? Things won’t work unless more efforts are made.”

It gets worse for France from there. Feld’s comments came in a Reuters report revealing German Finance Minister Wolfgang Schaeuble has ordered the board of economists advising the government to examine ways France needs to put its economic house into order. Responding to a flurry of substantiating stories following the Reuters report, German officials have said Schaeuble’s call for a review of France’s economic health was unofficial in nature. They also said the survey may be produced with a French institutional partner, and would in no manner be presented to Paris as a prescription for future policy.

But those disclaimers did little to assuage French sentiment their German “partner” in the euro crisis was demoting France to the club of weak, incorrigible, and eminently vulnerable euro members alongside Spain, Italy, and even Greece. “Berlin To Paris: ‘Achtung!’, blared the Nov. 12 headline of the French daily Libération. “In Germany People No Longer Hide Their Poor View Of France’s Economic Policies, and Sound the Alarm Over (France’s) Threat To Europe.”

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The timing of the negative German noise is additionally painful for French leaders. On Nov. 7, Hollande’s government announced it was applying selected elements from a long-anticipated report on boosting competitiveness of French companies, and reinvigorating the nation’s flat-lining economy. Under that, the government will extend $25.4 billion in tax credits to businesses to underwrite employee-linked charges financing health care, retirement, and other social programs. To finance that, the government will increase value-added tax by around 1%.

Critics in France complained that fell far short of the report’s call to slash those employee costs by  $38.1 billion—and hardly dented the $89 billion France’s business lobby demanded. Meanwhile, German officials have joined French detractors criticizing those moves for entirely ignoring structural changes they argue are necessary to make France’s labor market more flexible and efficient.

The weakening of employee rights and protection that involves is a painful transition Germany undertook a decade ago–and now claims was the key to creating its current economic stability.  Facing the same currency crisis, Germany’s 2012 growth rate is estimated at 0.9%, versus 0.1% in France; Germany’s jobless level of 5.4% is far below the 9.8% French tally. Yet German hectoring isn’t just about the altruism of one country wanting the best for its neighbor. Germany knows if France fails to right itself and tanks as a result, the entire euro zone will go down with it—Germans included.

French officials have responded to the worried German thrum with calming reminders that contrasting views over the pace of reform are part of a long line of differing but compatible economic and social philosophies that have set the two nations apart throughout history. Hollande made that point during the first major press conference of his presidency Tues. evening, as he defend his comparatively moderated approach to facing France’s deficit and debt problem–a performance aimed at both lifting his dismal domestic approval ratings, and quieting German critics. In doing so, Hollande brushed aside a question about German “France-bashing” by saying it was limited to “rumors” circulated by Germany’s tabloid press, and said the two partners remain united despite differences of opinion on even important points.

“The Chancellor and I have a mutual responsibility–advancing Europe,” Hollande said before 350 journalists in the Elysée palace. “We must not allow our differences–and they exist–to weaken the relationship, or impede compromise.”

But should that appeal for critical respite from the east fail, Hollande may point out how German-imposed, full-bore austerity hasn’t quite worked as promised where it’s been imposed. On Nov. 12, Merkel’s visit to Portugal hailing Lisbon’s debt-fighting spending cuts produced mass protests–and complaints resulting public pain hasn’t improved Portugal’s finances. Similar anti-austerity demonstrations have repeatedly halted activity in Spain and Greece—which on Monday had to be given two more years by creditors to meet debt reduction targets that ruthless waves of state spending cuts have failed to bring down.

And if those warnings don’t work to quiet German fretting, Hollande might hit Merkel where it really hurts. Observers on both sides of the Rhine say much of the new tough German talk on austerity targeting foreign nations is really aimed at German voters heading into general elections in 2013. Merkel may believe burnishing her reputation as Europe’s austerity enforcer will secure her re-election in a year, but Hollande may remind her a similar strategy had just the opposite effect for France’s former President Nicolas Sarkozy in his failed bid for a second term last May.

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