Germany, Fearful over French Path, Hails Reform Pledges
Germany, which has emerged as the dominant player in the eurozone crisis, has breathed a sigh of relief over reforms unveiled by France owing to fears that a key partner could go the way of Greece.
Berlin has seen the centre of gravity in Europe creep ever more in its direction during three years of eurozone turmoil due to its role as paymaster, and cautiously but clearly welcomed French measures laid out on Tuesday.
Germany, which has weathered the crisis better than many neighbours because it took precautionary measures years ago, was careful to avoid condescension with an official endorsement of moves unveiled by Prime Minister Jean-Marc Ayrault.
But sources said on condition of anonymity that they definitely went in the right direction given the gravity of the threat posed by the debt crisis.
"We welcome all efforts by our European partners that boost their competitiveness," one official told Agence France Presse.
"All measures which improve competitiveness are important for securing the future of the euro."
France promised tax breaks for businesses worth up to 20 billion euros ($26 billion) a year aimed at offsetting high payroll taxes that have dulled the competitive edge of French companies in the eurozone and beyond.
The tax credits are to be financed by a combination of cuts in public spending and increases in sales taxes (VAT).
Germany has been careful to avoid public criticism of its closest European partner as their alliance has traditionally served as the lodestar for the EU.
But officials have long fretted in private about the corrosive weakness of French industry, the economic drag of a 35-hour work week and the cost of a retirement age set at 60 as debt soared under former president Nicolas Sarkozy.
Chancellor Angela Merkel's conservative team also eyed the new Socialist president, Francois Hollande, with mistrust after an election campaign that openly challenged Germany's austerity-driven answers to the crisis, followed by a tentative start at governance.
Senior German officials warned that the markets would punish France, the EU's second biggest economy, with steep borrowing rates, potentially sending the country on a downward spiral similar to that of Greece, with hair-raising consequences for the eurozone as a whole.
Just last week, Germany's top-selling daily Bild asked "Will France Become The New Greece?" and reported frank criticism by former chancellor Gerhard Schroeder: "The campaign promises of the French president will shatter in the face of economic reality".
"France will really have problems if the refinancing of its debt gets complicated," added the German Social Democrat, whose labour market reforms in the early 2000s are often credited with creating the "German miracle" of low unemployment and respectable economic growth.
But the tone in the German media on France, which had markedly soured recently, improved this week, with the conservative broadsheet Frankfurter Allgemeine Zeitung hailing a "pleasant about-face" in Paris.
At the same time economists note that German demographic trends including its anaemic birth rate could turn the current powerhouse into the sick man of Europe, hobbling economic growth and its public finances in the long run.
"The image of France tends to be very poor in Germany among the press, the political class and the general public," said one well-informed observer of Franco-German relations in Berlin.
"The criticisms in the German press are not always founded," he said. "But they reveal a concern: if things go off the rails in France, there will be consequences for Germany."
Source: Agence France Presse
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