German finance minister backs French push for pro-growth investment

PARIS Thu Aug 28, 2014 3:13pm EDT

1 of 2. German Finance Minister Wolfgang Schaeuble attends a news conference at the Bercy Finance Ministry in Paris, August 28, 2014.

Credit: Reuters/Charles Platiau

PARIS (Reuters) - German Finance Minister Wolfgang Schaeuble backed French President Francois Hollande's calls for greater investment to boost growth in Europe on Thursday, hours after Hollande called for a euro zone summit to coordinate pro-growth measures.

France has for months called for Germany, Europe, and the bloc's central bank to do more to boost investment and growth in the euro zone, but had so far largely faced reluctance from EU powerhouse Germany.

"We can't deny that some geopolitical risks are currently playing a very important role," Schaeuble told a news conference with French counterpart Michel Sapin in Paris, adding that it was important to boost investment given weakening growth.

"There are signs of a certain economic slowdown. That's why its important to stay the course," on investment, he said.

After pushing for austerity in Europe for the past four years, Germany is showing clemency towards its closest ally, France, encouraged by a revamped French government's commitment to reforms and spending cuts.

Asked to respond to a call earlier on Thursday by Hollande for a euro zone summit to come up with pro-growth measures, Schaeuble said it was right that European leaders addressed the bloc's economic situation. He also said he was "pushing in the same direction" as Hollande on boosting growth via investments.

But asked to comment on repeated French calls for a weaker euro, Schaeuble said exchange rates should be set by markets.

Later in a speech to French business leaders outside of Paris, Schaeuble said that a weaker exchange rate was no substitute for reforms to make companies more competitive.

"We shouldn't improve our competitiveness by devaluing our currency," Schaeuble said in a speech entirely in French. "Manipulating exchange rates never leads to sustainable growth."

He welcomed Hollande's plans to cut payroll tax on companies, but brushed aside French calls for the European Central Bank to loosen its already ultra-easy monetary policy.

Hollande had said earlier on Thursday that low inflation in Europe and an overvalued euro threatened to create a protracted stagnation.

"The recovery is too weak. Inflation is too low. The euro is too high," he told an annual ambassador's conference. "Europe is threatened by a long and possibly interminable stagnation if we do nothing."

Two captains of French industry backed Hollande's calls for euro zone policymakers to act more forcefully to weaken the euro's exchange rate to make European firms more competitive.

"I think nobody wants a euro that is manipulated, but we can't be satisfied with a situation where the euro would be the only currency that politicians can't talk about," Louis Gallois, the head of the supervisory board of French carmaker PSA Peugeot Citroen (PEUP.PA), told a conference.

The euro, which traded at nearly $1.40 in May was trading at $1.3169 on Thursday, its lowest in nearly a year, as selling has increased over the last week on speculation that European policymakers will quicken monetary loosening as a way to boost economic growth and ward off the risk of deflation.

The CEO of Franco-Dutch airline group Air France-KLM (AIRF.PA), Alexandre de Juniac, joined Gallois in demanding a more "offensive" approach to the euro zone's exchange rate policy.

"The euro is a tool of global caliber ... Let's use our exchange rate policy," he said.

(Additional reporting by Alexandria Sage; Writing by Ingrid Melander; Editing by Mark John and Susan Fenton)

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