Germany, France Ask Economists for Advice to Avoid ‘Lost Decade’

SHARE

SHAFAQNA – Germany and France have tapped a prominent economist from each country for policy advice to counter “the risk of a lost decade in Europe” in an attempt to bridge the growing divide between the two countries over how to revive flagging economic growth in Europe.

German Economics Minister Sigmar Gabriel and French Economy and Industry Minister Emmanuel Macron recently solicited help from French economist Jean Pisani-Ferry and Henrik Enderlein, lecturers at the Berlin-based Hertie School of Governance, in separate letters seen by The Wall Street Journal.

Warning that Europe’s lagging recovery risks 10 years of “low growth, excessively low inflation, high debt and high unemployment,” the ministers gave the economists a month to identify joint Franco-German initiatives to boost growth in Europe and to recommend measures both countries should implement by 2017 to modernize and strengthen their economies.

Germany is facing mounting calls from eurozone leaders, chiefly in France and Italy, along with the International Monetary Fund and European Central Bank to spend more and encourage investment and consumption at home to help pull the currency area out of its current stagnation. Paris and Rome have also asked dispensation from Europe’s tough fiscal rules as they struggle to reduce their budget deficits.

Berlin has rejected the calls for help, however, and is sticking to plans to deliver a balanced federal budget next year despite signs that growth has slowed markedly in Germany over recent months. German officials also reject the French and Italian calls for fiscal leeway and insist Paris and Rome should focus on liberalizing their economies and cutting public spending.

Finance Minister Wolfgang Schäuble on Monday brushed aside talks of a slowdown in Germany after a spate of dismal data on production, orders and exports in the past two weeks.

“We in Germany have no reason for any nervous, hysterical hyperbole [about an economic slowdown],” he said in Luxembourg, adding the investment Germany needs should primarily be private.

France and Germany could find each other on opposite sides of the table again this fall if the European Union executive rejects the 2015 French budget for breaching EU fiscal rules. Paris will submit its budget for review by the European Commission later this week and officials in Brussels have warned the plans don’t go far enough to bring down the country’s budget deficit.

The French already responded angrily to the criticism of the 2015 budget, which will trim the deficit only slightly to a level still well above EU rules, and say they won’t raise more taxes or cut spending further when the economy is so weak. If the Commission were to declare France in breach of EU rules, Germany and other member states would have to endorse the decision in a move that could lead to sanctions being taken against Paris.

Mr. Gabriel, leader of the left-leaning party that is junior partner in Chancellor Angela Merkel ’s three-party coalition, has been more sympathetic to the left-of-center governments in France and Italy, even though he has stopped short of criticizing the chancellor’s balanced-budget goal, which is popular across party lines in Germany.

Mr. Macron, a former investment banker who represents the right wing of the Socialist party, in a statement played down the divisions between the eurozone’s two largest economies over policy. And officials at his office said the plan was hatched at a recent meeting between the two economy ministers.

“It is our responsibility to treat our two current weaknesses: We must be both willing to stimulate demand in the short term and strengthen our growth potential for future generations,” Mr. Macron said in a statement.

Officials in Berlin privately acknowledge the French government’s difficulty in adopting unpopular economic measures given Mr. Hollande ’s weak poll ratings and threat from Marine Le Pen ’s far-right National Front.

German economists said the two ministers’ letters, by requesting advice for both countries, marked a softening of Berlin’s rhetoric. Messrs Enderlein and Pisani-Ferry are known as critics of Ms. Merkel’s eurozone crisis management. Mr. Pisani-Ferry heads France Stratégie, a government-sponsored think tank that advises the prime minister.

Still, Berenberg economist Holger Schmieding said, Berlin remains under far less pressure than Paris to act. “It’s glaringly obvious what France needs to do and glaringly obvious that Germany isn’t going to provide fiscal stimulus,” Mr. Schmieding said.

Neither Mr. Enderlein nor Mr. Pisani-Ferry could be reached for comment.

—Gabriele Steinhauser in Luxembourg contributed to this article.

Write to Harriet Torry at harriet.torry@wsj.com and William Horobin at William.Horobin@wsj.com

LEAVE A REPLY

Please enter your comment!
Please enter your name here