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Merkel Austerity Called Counter-Productive by French Socialists

February 09, 2012

Feb. 8 (Bloomberg) -- Germany’s push to treat Europe’s financial crisis with austerity may backfire by stifling its exports to the euro area, says Jerome Cahuzac, economic adviser to France’s Socialist presidential candidate.

“No country in Europe will obtain balanced budgets without growth,” Cahuzac, a lawmaker who also heads the Finance Committee at the lower chamber of Parliament, said in an interview in Paris Feb. 1. “It is also in the interest of Germany that growth resumes everywhere and not just in Germany.”

His comments underscore the schism between Francois Hollande, the Socialist candidate who leads President Nicolas Sarkozy in polls, and policy makers in Berlin. Hollande has vowed to renegotiate the German-inspired treaty tightening budget rules endorsed by 25 European Union leaders last month, saying it is biased against economic growth.

“A Hollande government might be on a collision course with Germany,” George Magnus, senior economic adviser at UBS AG, said in an e-mailed note Feb. 6 that pointed to the increasing chance of a Hollande victory in the voting that concludes with a runoff on May 6.

German Chancellor Angela Merkel has declined to accept Hollande’s bid for a meeting during the French campaign. A decision has yet to be taken, a German official said yesterday. She said Feb. 6 she supports Sarkozy “at every level.”

Hours after she expressed her preference in a joint press conference with Sarkozy, Hollande told reporters “what matters is French people’s judgment. Their support is the only support I seek.”

Hollande Proposals

Hollande’s policy platform includes proposals that may meet resistance across the Rhine river that forms the Franco-German frontier.

Hollande “has said he would want to renegotiate the German-driven fiscal compact, he wants a much stronger commitment to pro-growth policies, and he favors European Central Bank, euro bonds and euro firewall initiatives to which Germany is implacably opposed,” UBS’s Magnus wrote.

Europe’s biggest economy, which Sarkozy has called a model, isn’t a model for the Socialists, Cahuzac said. “We must find inspiration in what has been done for small companies,” he said in the interview. “But we must not follow what they do for savings, where it’s not sufficient; for the birth rate, it’s worrying; in terms of equality, poverty increased significantly.”

German unemployment dropped to a two-decade low of 6.7 percent in January while French joblessness exceeds 9 percent. The German economy registered 3 percent annual growth last year and 3.7 percent the year before, the most since German reunification. The French economy may be in recession now.

Growth Forecasts

The International Monetary Fund has reduced 2012 growth forecasts as budget cuts in the 17-nation euro area damp demand for Germany’s goods in its biggest export market. The IMF cut its forecast for German growth by one percentage point to 0.3 percent. French growth may not exceed 0.2 percent, the IMF said.

“Germany won’t remain strong in a weakened Europe, it won’t stay rich in a poorer Europe,” Hollande told about 15,000 supporters in his first major campaign speech in Le Bourget, north of Paris. He has called for a more ’’equal’’ economic and political relationship with Germany since he started campaigning last year.

Hollande would garner 37 percent of the votes in the April 22 first round and Sarkozy 29 percent, according to a BVA poll for Le Parisien daily, published Feb. 7. Head to head, the Socialist would win 58 to 42 percent, the Paris-based pollster said.

--With assistance from Mark Deen in Paris. Editors: James Hertling, Jeffrey Donovan

To contact the reporters on this story: Helene Fouquet in Paris at; Carol Matlack in Paris at

To contact the editor responsible for this story: James Hertling at

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