Germany's Angela Merkel criticised France's economic performance on Friday (15 June), warning against "mediocrity" in tackling Europe's deepening debt crisis as discussions continued over greater fiscal and economic integration in the eurozone.
Merkel, under pressure from eurozone peers to ease up on her austerity drive in Europe, reiterated her view that issuing new debt to finance economic growth is not sustainable and she again ruled out a mutualisation of debt, or eurobonds, to tackle the crisis.
Such moves would open a "path to mediocrity", she told a gathering of German entrepreneurs on Friday, saying she will reject any such "quick" crisis solutions.
French President François Hollande has spoken out in favour of swiftly adopting eurobonds and also insists that Europe needs to do more to revive growth to offset its German-inspired focus on tackling budget deficits and public debt.
Merkel has not ruled out eurobonds entirely but said they could only be envisaged at the conclusion of a longer-term process of political and fiscal union in the eurozone and sovereignty transfers to Brussels – a bold federalist step that France is hesitating to take.
Differences in competitiveness
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 and traditional allies.
Tension has 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 Merkel, possibly irritated by Hollande's meeting with German centre-left opposition leaders earlier this week on eurozone policy, took what looked like a swipe at his expansive policy ideas such as a new decree partially lowering the pension age, which was part of his election campaign.
"If you look for instance at the development of unit labour costs between Germany and France in the past 10 years, then you see that at the start of the millennium Germany looked rather worse or at best as good as our neighbour in a lot of factors, while the differences have now been growing a lot more strongly, also a topic that must be discussed in Europe, naturally," she said.
Meanwhile, European Council President Herman Van Rompuy was to host a phone call on Friday between the leaders of Germany, Italy, France, Britain and Spain ahead of next week's meeting of the Group of 20 leading industrial nations, his spokesman said on Friday.
One EU official, speaking on condition of anonymity, said the leaders may use the call to discuss deeper European economic integration, including the degree to which it should involve all 27 members of the European Union or the 17 countries in the eurozone.
Van Rompuy, Commission President José Manuel Barroso, European Central Bank President Mario Draghi, and Eurogroup Chairman Jean-Claude Juncker have been given the task of reporting on closer eurozone integration to a leaders' summit on June 28-29.
Banking and fiscal union
The eurozone's plans to move towards a banking and fiscal union should help market confidence, but investors must give Europe time for the process, EU Economic and Monetary Affairs Commissioner Olli Rehn said on Friday.
"We need to map out the direction and steps towards a full economic union to complete our monetary union, including through a financial union," Rehn said. "Demonstrating the political commitment of member states to the euro will be a key part of restoring confidence in the euro area," he said.
He said the main elements of a financial union would include a single rule book on capital requirements, integrated financial supervision, a common resolution authority and a single deposit insurance scheme.
"All these common and integrated elements should be put together into the same overall framework, intended for the 27 member states, while allowing deeper integration and stronger requirements for the euro area as necessary," he said.
While the economic integration process is likely to be politically difficult and take years, it would lead, in the end, to joint eurozone debt issuance – which markets would very much welcome.