UPDATE 1-Germany praises "new direction" in French economic policy

Wed Jan 15, 2014 10:55am EST

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* Foreign minister describes reform plans as "courageous"

* Germans caution that implementation will be difficult

By Andreas Rinke and Noah Barkin

BERLIN, Jan 15 (Reuters) - Germany praised on Wednesday economic plans unveiled by French President Francois Hollande as a courageous "new direction" which could revitalise France just as welfare state reforms a decade ago succeeded in its larger neighbour.

Under pressure over a lacklustre economy and high unemployment, Hollande outed himself as a "social democrat" in the German mould on Tuesday and announced a series of measures, including public spending cuts and tax relief for business.

Germany, which was once dismissed as the "sick man of Europe", has rebounded in recent years thanks partly to the reforms of Gerhard Schroeder, the Social Democrat predecessor of conservative Chancellor Angela Merkel.

Berlin has been discreetly encouraging Hollande to take similar steps since the Socialist became president in 2012.

"Germany also took its time and had to overcome certain hurdles before it could agree on reforms of the economy and labour market that promised improvement in the economic situation," said Foreign Minister Frank-Walter Steinmeier, a member of the German Social Democrats (SPD) and Schroeder's former chief of staff.

"What the French president presented yesterday is first of all courageous," he added, describing the measures as a new direction in policy that would help not only France, but Europe to emerge stronger from its financial crisis.

France risks inheriting "the sick man of Europe" title with the economy forecast to grow just one percent this year. Most economists say this is too little to bring down unemployment as Hollande has promised.

The European Commission also welcomed the measures, saying they promised to strengthen the competitiveness of French business and bolster growth and employment in the country.

Claire Demesmay, an expert on France at the German Council on Foreign Relations, said Hollande appeared to be breaking several taboos with his announcement.

Just last May, at a 150-year anniversary celebration of the German SPD, Hollande made clear that he saw himself as a socialist, not a social democrat. French leftists have long regarded social democracy - which aims to achieve welfare structures and solidarity within a free market economy - as dirty words because they imply an acceptance of capitalism.

Demesmay likened the French president's plans to both Schroeder's reform drive and the SPD's decision in 1959 to break with Marxism, but said appearing to follow German policies carried risks for Hollande.

Marine Le Pen, leader of France's far-right National Front, accused the president of "Germanising" their country after his Tuesday news conference.

"Hollande cannot bind himself too closely to Germany," Demesmay said, adding that big Franco-German initiatives were unlikely before European Parliament elections. Populist parties on the left and right, including Le Pen's, are expected to do well in the May vote.

Others in Germany warned that it was too early to declare Hollande's reform drive will succeed given strong opposition from French unions and members of his own party.

"Hollande has opened a big can of worms that will unsettle his country," the conservative Frankfurter Allgemeine Zeitung wrote in an editorial. "In Europe, and especially in Berlin, people will be watching closely to see if he can stay the course with his shift."

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