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Merkel praises French reform plans

September 22, 2014

German Chancellor Angela Merkel has praised France's "ambitious" reforms program following talks with French Prime Minister Manuel Valls. Merkel said adherence to the European stability and growth pact remained key.

Angela Merkel and Manuel Valls
Image: REUTERS/F. Bensch

Despite strained Franco-German relations, German Chancellor Angela Merkel praised France's economic reform plans on Monday, following talks with French Prime Minister Manuel Valls in Berlin regarding France's stagnating economy and plans for European growth.

"The prime minister told me about his impressive, ambitious reform program," Merkel told reporters at a joint press conference after private talks with Valls. "I see the great efforts, and the evaluation of these will be up to the European Commission," she added.

Amid criticism that France's measures will not go far enough to get the country back on its feet and restore fiscal discipline, Valls said at Monday's press conference that he could understand Germany's doubts surrounding the reforms, but didn't want to ask for leniency. The prime minister promised that his government would deliver reforms "to get France back on track."

"France will without doubt fulfill its responsibility," Valls insisted.

No 'sick child of Europe'

In her remarks, the chancellor insisted that adherence to the European stability and growth pact was key, saying that it remained important that "we hold our ground regarding what we have agreed with each other."

Valls bei Merkel 22.09.2014
In Berlin, Angela Merkel praised France's "ambitious" reformsImage: Reuters/Fabrizio Bensch

Merkel reiterated, however, that compared to the US and China, Europe had a lot to catch up on in the digital economy.

Valls used his first official visit to Berlin since taking office six months ago to try and convince Merkel that Paris remained committed to reforming France's ever-dwindling economy and expanding public deficit. Despite reporting last week that the French government will miss 2015's deficit target by two years, Valls said at Monday's press conference that "France is not the sick child of Europe".

With France facing a predicted deficit of 4.4 percent of gross domestic product (GDP) for 2014, Vall said that more time would be needed to reduce it to below 3 percent of GDP, the upper limit set by the EU for its members.

In stark comparison to France's economic problems, Germany plans in 2015 to have its first balanced budget since 1969.

Strict budget discipline

Valls, the second prime minister appointed during Hollande's two years in power, is set to unveil unprecedented spending cuts in the coming weeks of 50 billion euros ($64.24 billion) in pensions, health care and the overall budget.

Hollande und Valls Archivbild 20.08.2014
Hollande's (left) government resigned in AugustImage: Reuters

More than two years into Hollande's presidency, France's economy has stalled, unemployment has risen to 10 percent - double that of Germany - and Hollande's already record-low popularity ratings recently have sunk to an even lower 13 percent. In August, Hollande's government resigned over economic policy, leaving Valls with the task of setting up a new cabinet.

The French Socialist government was brought to the brink again last week, as Valls narrowly won a crucial parliament vote of confidence on his reshuffled government by 269 votes to 244.

"To reform is not to break, to reform is not to regress" said Valls whilst defending his plans for economic reforms. "To reform is to affirm our priorities, while refusing austerity."

'Responsibilty pack'

A package of tax cuts and labor reforms presented by Valls in April was met with disappointment by the opposition party, the UMP.

Valls said income taxes on low earners would be reduced from January 2015 and employment costs for companies would be cut by 30 billion euro ($38.6 billion) from 2016. In what Valls described as "a true revolution," companies will no longer pay charges for workers on minimum wages.

Further cuts in the "Responsibilty pack" included 10 billion euros from the health budget, 19 billion euros from state spending, and a further 10 billion euros from local government.

Airbus A319
Prime Minister Valls will also vist an Airbus plant in HamburgImage: Reuters/Charles Platiau

Other measures covered France's dependence on nuclear energy, which will be reduced by 50 percent by 2025, as well as a reduction in fossil fuel consumption by 30 percent and greenhouse gases by 40 percent by 2030.

Bad image

As Air France strikes enter their second week, Valls has also already warned that the image of the eurozone's second largest economy was at risk.

Following talks with the chancellor, the French prime minister flew north to Hamburg to visit an Airbus plant, before meeting Vice Chancellor and Economy Minister Sigmar Gabriel, head of the centre-left SPD Social Democrats - the coalition partners to Merkel's conservative CDU.

ksb/tj (AFP, dpa, Reuters)