* France and Germany trade barbs as euro crisis deteriorates
* Merkel criticises French economy after jibes from Paris
* Hollande and Merkel on collision course over euro crisis
By Annika Breidthardt and Daniel Flynn
BERLIN/PARIS, June 15 Germany's Angela Merkel
criticised France's economic performance on Friday in a war of
words with its new Socialist president, Francois Hollande, over
how to tackle Europe's deepening debt crisis ahead of a pivotal
election in Greece.
Describing her own country as Europe's "stabilising anchor
and growth engine", the centre-right chancellor told German
business leaders that Europe should talk about the growing gap
between the bloc's two biggest economies.
The unusual rhetoric came after Hollande met German
centre-left opposition leaders this week and also unveiled
economic reforms, including a partial lowering of the pension
age, that Berlin fears will only deepen France's economic
The rift between the two powers that traditionally drive
European Union policy coul hardly come at a worse time. If a
radical left party wins Sunday's vote in Greece, the euro zone
could find itself scrambling to avert a humiliating break-up.
Merkel said in her speech that only a decade ago Germany
trailed or was at best even with France by traditional measures
of competitiveness, such as unit labour costs.
Now, she said, Germany had opened up a "growing" lead,
saying this was an issue "that must be discussed in Europe,
Tensions have risen so much that French Prime Minister
Jean-Marc Ayrault felt moved to deny that his country was trying
to form a united front with Italy and Spain against Merkel and
her drive for austerity in the single currency zone.
But France later sought to cool tempers, saying relations
with Germany were intact after Hollande and Merkel found common
ground on G20 issues during a video-conference with other EU
"There is a free exchange of views, which is not the same as
aggressiveness. We don't perceive it that way at all," said a
French presidential source.
Still, the spat bore out fears voiced after Hollande's
election last month that the Franco-German partnership may not
be as close as under his predecessor, Nicolas Sarkozy, whom
Merkel backed during the campaign, refusing to meet Hollande.
Sarkozy's conservative UMP, now in opposition, accused
Hollande's Socialists of feeling "obliged to sabotage" the
Paris-Berlin dialogue because they disagreed with Merkel.
UMP national secretary Camille Bedin criticised Ayrault for
advising Merkel to "take things seriously and courageously" and
Industry Minister Arnaud Montebourg for saying Merkel's
"ideological blindness" was to blame for having "driven seven
countries out of the euro zone's 17 into recession".
In addition to the pensions move, Hollande's government has
announced plans to increase the cost of laying off workers.
Merkel reiterated her view that issuing new debt to finance
growth was not sustainable and again ruled out mutualising euro
zone debt or issuing joint bonds to tackle the crisis - a stance
diametrically opposed to Hollande's.
Rebuffing international pressure on Germany to underwrite
the debts or bank deposits of weaker euro zone economies, Merkel
said this week that "Germany's strength is not infinite".
Hollande says Europe must do more to revive growth to offset
its German-inspired focus on tackling deficits and public debt.
His positions are shared by Germany's centre-left Social
Democrats (SPD) and Greens, who have been emboldened by his
victory to step up their opposition to Merkel ahead of next
year's federal elections, where she will seek a third term.
SPD leader Sigmar Gabriel said after meeting Hollande and
Ayrault in Paris on Wednesday there was "no crucial point" on
which his party and the French government disagreed, including
the need for a tax on financial transactions in Europe.
The meeting at the Elysee Palace with the SPD's three main
leaders was in itself a breach of protocol as a new president
would normally play host to the German chancellor before there
was any question of meeting the opposition.
Hollande could have been paying Merkel back for her refusal
to meet him when he was running against Sarkozy, but it was also
seen as emphasising his rejection of the policy ideas of the
"Merkozy" power couple that dominated the euro zone.
"It's all part of the big poker game taking place between
France and Germany at the moment," said political analyst
Jacques Reland of the London-based Global Policy Institute.
France's first Socialist president in 17 years is on track
to secure a clear parliamentary majority on Sunday, adding the
lower house to its control of the Senate, which would give the
left more power than it has ever held in France.
At an EU summit on June 28-29, Hollande is seeking German
agreement to implement growth- and job-creating measures to
accompany the fiscal pact, which both the French and German
parliaments have yet to ratify.
Merkel has accepted, with varying degrees of enthusiasm,
four measures pushed by Hollande that were already on the agenda
before his election: more capital for the European Investment
Bank, reallocation of EU regional aid funds, project bonds to
fund infrastructure, and the transaction tax.