Germany strikes conciliatory note on French, Italian reform efforts

By Reuters

Dec 08, 2014 08:35 AM EST

Germany praised French and Italian reform efforts on Monday and said it ought to do more itself, striking a conciliatory note after Chancellor Angel Merkel's critique of Paris and Rome over the weekend irritated both countries.

In an interview with German newspaper Die Welt on Sunday, Merkel called on Italy and France to enact additional measures ahead of a March ruling by the European Commission on whether their budgets conform with the bloc's deficit and debt rules.

Euro zone finance ministers are meeting in Brussels to discuss the Commission assessments. Entering the talks, German Finance Minister Wolfgang Schaeuble adopted a softer tone.

"If you look at the news and what has been done in the countries over the past weeks then you see that Italy, for example, has passed a remarkable reform to its labor market in its legislative assemblies, France has been taking additional measures all the time," Schaeuble told reporters.

"We are all on the right track and in Germany we also have to make an effort," he said.

The Commission has postponed judgment on whether France, Italy and Belgium are in breach of EU deficit and debt rules until early March, saying it needs final 2014 budget data and final 2015 budget laws to make an accurate assessment. It could potentially fine France and put Italy and Belgium under a disciplinary procedure for non-compliance.

But with 2014 almost over and the size of the reforms and budget consolidation shortfalls very large, many euro zone policymakers believe the delay offers a final chance for France and Italy to quickly pass laws that would allow the EU executive not to punish the two governments.

"It is paramount that the time is used to move things in the right direction," Schaeuble said.

The chairman of euro zone finance ministers, Jeroen Dijsselbloem, said France and Italy must listen carefully to what the Commission had said, namely that extra measures must be considered.

In Italy, Prime Minister Matteo Renzi reluctantly amended his original budget plan in October in the face of European Commission objections, offering some 4.5 billion euros of additional deficit cuts worth around 0.3 percent of GDP.

But with the euro zone's third-biggest economy mired in recession and unemployment above 13 percent, the highest level since the 1970s, he wants to avoid further spending reductions.

France initially pledged to bring its deficit down to the EU limit of 3 percent by 2013 but has now acknowledged that it will not reach that threshold until 2017.

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