Berlin, Paris Push to Revive Struggling EU Economy

Europe's German-French motor gathered momentum on Thursday when the cabinets of both countries gathered in Berlin (photo)for a one-day joint meeting.

The talks focussed chiefly on ways to inject fresh life into Europe's depressed economy, though they also touched upon the postwar situations in Iraq and Afghanistan.

French President Jacques Chirac and German Chancellor Gerhard Schröder outlined a common initiative to stimulate growth across the European Union and create more jobs.

The initiative goes beyond recent infrastructure proposals made by Italy which currently holds the rotating EU presidency, and encompasses a host of investment projects worth billions of euro in areas ranging from research, telecommunications, information technology and biotechnology to transport and sustainable development.

The German-Franco projects are meant to be primarily financed through low-interest loans from the Luxembourg-based European Investment Bank. They could also include high-profile projects like the planned Berlin-Brandenburg airport in Berlin and the linking of the French high-speed train TGV with the ICE in southwestern Germany.

Hans-Martin Bury, Germany’s deputy minister for European affairs told the Financial Times ahead of Thursday’s meeting, "The growth initiative will be about industry policy. We have not become overnight advocates of fiscal stimuli, which we think are flashes in the pan. What we want is to structurally improve the competitiveness of Europe’s economy.

The EU Commission welcomed the German-Franco initiative on Thursday. "We’re very satisfied that the topic has been placed right at the top of the political agenda," a spokesman for Economic and Monetary Affairs Commissioner Pedro Solbes said in Brussels.

Paris, Berlin urged to toe stability criteria

But not everybody is happy with the new Franco-German initiative to spur Europe’s sluggish economy.

Dieter Hundt, Head of the German Employers’ Federation reacted cautiously to Thursday’s outcome. "What’s important is that we first do our homework," he said in a reference to mounting criticism of the euro-zones' two largest economies coming dangerously close to breaching the EU Stability and Growth Pact.

The pact stipulates that euro zone countries are not allowed to run up public deficits in excess of 3.0 percent of gross domestic product (GDP). Both France and Germany violated that limit last year and are almost certain to do it again this year.

EU member states Austria and the Netherlands stepped up criticism of the two heavyweights on Thursday. Dutch Finance Minister Gerrit Zalm told German daily Berliner Zeitung that Berlin and Paris shouldn’t just endorse the stability pact with words, but also actions. "The two countries are the architects of the pact. They shouldn’t just push it aside, as soon as its rules become a little unpleasant," he said. His Austrian counterpart Karl-Heinz Grasser warned that the credibility of the stability pact was at stake.

Differences on Iraq surface

Both Schröder and Chirac, who formed a unified anti-war front against the U.S.-led war in Iraq, also reiterated demands on Thursday to hand back power to an Iraqi civil government as soon as possible. Both leaders stressed it was urgent to find a political solution to the situation in postwar Iraq.

At the same time, differences between the two leaders were discernible on the issue of training Iraqi police and soldiers. While Chirac insisted France wouldn’t support the U.S. before a U.N. resolution had been passed, Schröder said ahead of the summit that Germany was prepared to help train Iraqi police and armed forces. "The readiness to help with the training, is independent of a U.N. resolution, I’ve already agreed to that," Schröder said in an interview with business daily Handelsblatt on Thursday.

On the issue of Afghanistan, Chirac indicated his clear support for Germany’s stance in favor of expanding the NATO-led multinational ISAF (International Security ) mandate beyond the capital of Kabul. France however doesn’t plan to increase the number of its peacekeeping soldiers stationed in Afghanistan, currently at 500.

The overall subject of Europe's position on Iraq will top the agenda at a high profile trilateral summit with Great Britain on Saturday, when British Prime Tony Blair seeks to find common ground on deadlocked talks at the U.N. Security Council with Schröder and Chirac.