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Entente not so cordiale?

Monday, September 22, 2014 - 02:27

Germany and France try to reconcile divergent visions of how to fix Europe's economy. As David Pollard reports, the French Prime Minister's meeting with the German Chancellor comes after Europe was blamed for holding back world growth.

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It's the alliance on which the EU was built - and it's under pressure. Manuel Valls is on his first visit to Berlin as French prime minister. France wants more time to meet EU deficit targets in order to free up spending - and is promising structural change. SOUNDBITE (German) GERMAN CHANCELLOR, ANGELA MERKEL, SAYING: "Prime Minister Manuel Valls just presented his reform agenda and I think it is an impressive number of measures France is undertaking." But, says Germany, Brussels would have the final say on changing deficit targets. Elsewhere too there's concern at Europe's stagnant economy - as at the weekend's G20 summit. It says it's close to agreeing measures worth $2 trillion to boost growth. Europe is a stumbling block. US Treasury Secretary Jack Lew. SOUNDBITE (English) U.S. TREASURY SECRETARY JACK LEW: "There's a risk that the headwinds get stronger and what I think Europe needs is some more tailwinds in the economy and that's what boosting demand in the short run would do.'' It adds up to a quandary for Mario Draghi. He's in Brussels talking to an EU committee. With billions of cheap ECB loans already on offer, he's been trying to steer towards fiscal rather than more monetary easing. SOUNDBITE (English) ECB PRESIDENT, MARIO DRAGHI: ''We shouldn't forget what was the fiscal situation four or five years ago. But having said that, there are margins, there is room within the Stability and Growth Pact rules, for a certain amount of flexibility, depending on the conditions in which different countries are.'' QE could still be another option. If it's still the right tool to use. Tom Vosa of NAB. SOUNDBITE (English) TOM VOSA, HEAD OF MARKET ECONOMICS, NAB: ''We know from evidence in the UK and the States that it's very, very powerful mechanism when the banking system is broken, when the monetary transmission is impaired. Yet as we march towards the Asset Quality Review in Europe, which is of course recapitalising the banks by force, if necessary, it's unclear whether these transmission mechanisms are still as massively broken as they were and therefore, on that basis, whether QE works.'' As for Manuel Valls: promises of structural reform may prove hard to swallow for backbenchers in his Socialist Party. The EU's dilemma is over other euro zone members - and whether they'll see double standards if France gets its way - and demand they too should be allowed to spend more.

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Entente not so cordiale?

Monday, September 22, 2014 - 02:27