Berlin and Paris seek reform proposals to avert policy clash

[October 13, 2014]  BERLIN (Reuters) - The German and French economy ministers have asked experts in Berlin and Paris to come up with reform recommendations for both countries in an apparent attempt to avert a full-blown clash between the euro zone heavyweights over economic policy.

In letters signed by Sigmar Gabriel and Emmanuel Macron and seen by Reuters, the two ministers note that the European recovery is lagging that of other advanced economies, raising the risk of a "lost decade" of low growth, excessively low inflation, high debt and high unemployment.

The letters ask Henrik Enderlein, head of the Jacques Delors Institut in Berlin and a professor at the Hertie School of Governance, and Jean Pisani-Ferry, a French government adviser and former head of the Brussels-based Bruegel think tank, to compile a report by mid-November with concrete reform proposals.

"As the two largest economies in Europe, France and Germany have a particular responsibility and a critical role to play to ensure both a rapid recovery and a strong and sustainable growth going forward," Gabriel and Macron write.

By asking the two experts to make reform recommendations for both countries, the ministers seem intent on defusing an escalating war of words between Berlin and Paris, in which German officials have repeatedly lectured France on the need for more hard-hitting economic reforms.

France announced earlier this month that it would not bring its deficit down within European Union limits until 2017, four years later than originally pledged, setting up a confrontation with the European Commission.

Germany is also under fire for sticking with its ambitious goal for balanced budget next year despite a weakening German and European economy.

Finance Minister Wolfgang Schaeuble came under fierce criticism at a meeting of the International Monetary Fund (IMF) in Washington last week for refusing to consider more public investments to stimulate growth.

One senior official in Berlin suggested that by proposing the joint reform study Gabriel, a Social Democrat (SPD), was seeking to avert a damaging confrontation between the hard-line conservative Schaeuble and the Socialist French government by proposing the joint reform study.

"We want a solution that prevents the Titanic from hitting the iceberg," the official told Reuters.

Asked at a government news conference on Monday whether Chancellor Angela Merkel had been consulted on Gabriel and Macron's plan, her spokesman Steffen Seibert said she welcomed any initiative which might help France in its reform efforts.

In their letters to Enderlein and Pisani-Ferry, the ministers ask them to focus on key structural reform needs that could be addressed by 2017, with a focus on investment and modernization.

They are also asked to outline possible joint Franco-German initiatives that could enhance competitiveness, structural convergence, integration and growth in Europe.

At last week's meetings, the IMF called for bold action from governments to bolster the global economic recovery.

(Reporting by Rene Wagner and Michael Nienaber; Editing by Noah Barkin)

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