Bloomberg News

Schaeuble Warns Against Calling France ‘Sick Man’ of Europe

November 13, 2012

German Finance Minister Wolfgang Schaeuble warned against calling France the “sick man” of Europe, saying the governments of continent’s two largest economies shouldn’t criticize each other.

“I would warn against this constant calling one or the other the sick man or the sick woman,” Schaeuble told journalists in response to questions in Brussels. “We have trust in the policies of the French government.”

Allies of German Chancellor Angela Merkel have expressed concern that President Francois Hollande’s isn’t moving quickly enough to bolster French competitiveness. Schaeuble spoke at a joint press conference with his French counterpart, Pierre Moscovici, the day after Liberation newspaper ran a front-page article highlighting German anxiety about the policies of France’s Socialist government.

France is Germany’s closest partner in Europe and it “would be good if the Socialists there would courageously initiate real structural reforms now,” Volker Kauder, head of the parliamentary group of Merkel’s Christian Union bloc said, according to a Spiegel magazine report. Germany would like Hollande to “move a little more” toward Merkel, Spiegel quoted Kauder as saying.

Since coming to power six months ago, Hollande has lowered the retirement age for some workers, imposed a tax of 75 percent on earnings over 1 million euros ($1.27 million) and lifted the minimum wage. He has also consistently pressed Merkel to ease her push for austerity to fight Europe’s three-year old debt crisis.

More recently Hollande has set out a plan to give a tax credit to companies to ease labor costs and raise France’s two highest sales tax rates starting in January 2014. He’s told unions and business leaders to come up with a plan to make labor rules more flexible by the end of this year.

‘Huge Subject’

“The government is attacking its problems and acting on competitiveness,” Moscovici said. “On the labor market, we’re not immobile. It’s a huge subject and President Hollande has insisted on tackling it.”

So far, bond investors haven’t shared German concern. The yield on France’s benchmark 10-year debt dropped about 0.05 basis points today to 2.055 percent. That’s close to the record low of 2.054 percent reached Aug. 2.

The spread between French and German government 10-year debt is about 72 basis points, down from more than 200 basis points a year ago and 143 basis points when Hollande took office in mid May.

Even so, the French economy has failed to grow for three quarters and national statistics office Insee estimates that growth won’t return in the final two quarters of 2012. France is on track to roughly match last year’s record trade deficit, according to the Finance Ministry, and unemployment has jumped to a 13-year high as companies such as PSA Peugeot Citroen (UG) SA and Alcatel-Lucent (ALU) slash thousands of jobs.

German Recovery

Schaeuble pointed to Germany’s own recovery from high unemployment and waning competitiveness a decade ago as reason for hope that France can turn around its situation.

“A few years ago Germany was seen as the sick man of Europe and that was wrong,” Schaeuble said. “It’s not as if we do everything right in Germany, just as it’s not as if -- and I mean this well -- that everything is done right in France.”

Moscovici said he was astonished about questions of discord between France and Germany.

“It’s extraordinary that we’re speaking about divergences at a time when we’re holding a press conference together,” Moscovici said. “I’m grateful to Wolfgang Schaeuble” for expressing his confidence “so forcefully.”

To contact the reporters on this story: Mark Deen in Brussels at markdeen@bloomberg.net; Patrick Donahue in Brussels at pdonahue1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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