* Finance minister concerned about health of French economy
* Alarm bells over lack of action on labour market reforms
By Annika Breidthardt and Rene Wagner
BERLIN, Nov 9 German Finance Minister Wolfgang
Schaeuble has asked a panel of advisers to look into reform
proposals for France, concerned that weakness in the euro zone's
second largest economy could come back to haunt Germany and the
broader currency bloc.
Two officials, speaking on condition of anonymity, told
Reuters this week that Schaeuble asked the council of economic
advisers to the German government, known as the "wise men", to
consider drafting a report on what France should do.
Schaeuble's request denotes growing concern in Berlin and
among private economists over the health of the French economy,
which is set to miss a European Union goal for reducing its
public deficit next year.
"Concerns are growing given the lack of action of the French
government in labour market reforms," Lars Feld, an economist
who sits on the panel, told Reuters.
Although Schaeuble raised the prospect of a report on France
with members of the council this week, Feld and the finance
ministry made clear that the government had not submitted a
formal request. The ministry declined comment on the minister's
"unofficial discussions" in general.
French President Francois Hollande's office declined to
The panel of advisers publishes an annual report on the
state of the German economy, which it handed over to Chancellor
Angela Merkel on Wednesday. It can also draft special reports
when it sees economic imbalances developing or at the formal
request of the government.
Since being founded 49 years ago, the panel has published no
studies on individual countries but Germany, according to its
website. Its last expert opinion, the first since 1997, was
published in July, following the European Union summit in June.
France has been the number one consumer of German goods for
years. In 2011, Germans sold more than 101 billion euros there,
about 10 percent of overall exported goods.
Hollande, in office for roughly half a year, is under
intense pressure to reform an economy that is losing
competitiveness relative to its larger neighbour Germany and
southern European countries that have enacted far-reaching
measures in the euro crisis.
This week, in response to calls by industrialist Louis
Gallois for cuts in labour charges to reverse decades of
industrial decline, the government announced it would grant 20
billion euros in annual tax credits to companies as a way of
lowering labour costs.
Asked in Paris about the discussions, French Prime Minister
Jean-Marc Ayrault said: "You're the ones saying that."
He added: "We are constantly communicating with them
(Germans) and I will be in Berlin next week to meet Mrs. Merkel,
and just before that I will have spoken with Mr Schaueble."
Economists said Hollande's reforms were sending the correct
signal but may not be enough. Unlike European peers Italy and
Spain, France's borrowing costs have remained low, but there is
a growing concern that its rock-bottom bond yields do not
reflect the fragility of the economy.
A Bank of France survey published on Friday predicted French
gross domestic product will shrink 0.1 percent in the last
quarter of 2012, pushing France into a technical recession,
defined as two consecutive quarters of contraction, as the third
quarter is also expected to be negative.
Schaeuble has been a close ally of France and has argued
firm ties are key to achieving more European integration, a
persistent German demand to solve the problems of the euro zone.
In August, he and his French counterpart Pierre Moscovici
said they would launch a working group in order to make joint
proposals on euro zone issues like fiscal and banking union.
The German "wise men" panel, which also includes a woman, is
not obliged to take up Schaeuble's suggestion. One source said
if it decided to do a study, it would likely do so in
cooperation with a French institute, rather than on its own.
Wolfgang Franz, head of the "wise men" panel said an
informal conversation with Schaeuble had taken place about
developing the currency union and that the panel would stay in
touch with the minister on this. There had been no order for the
panel to make economic proposals to France, he added.
However, the panel has made clear it is concerned about
France's economy. In its Wednesday report it touched on France,
saying continued stagnation was a growing worry given the
recessionary trends in the euro zone as a whole and voiced
doubts that savings measures would suffice to consolidate the
"The biggest problem at the moment in the euro zone is no
longer Greece, Spain or Italy, instead it is France, because it
has not undertaken anything in order to truly re-establish its
competitiveness, and is even heading in the opposite direction,"
Feld said on Wednesday.
"France needs labour market reforms, it is the country among
euro zone countries that works the least each year, so how do
you expect any results from that? Things won't work unless more
efforts are made."
France and Germany have been at the core of efforts to stop
the euro zone crisis spreading from the periphery to the larger
While many have accepted twice bailed-out Greece is a
special case, German officials say in private that they are
concerned trouble in Spain and Italy could spill over to France
unless Hollande takes bold steps.
"I am convinced that what France is doing is good not just
for France but also for Europe," said Ayrault.