Germany and France move closer on economy and taxes

During visits to Berlin, French Prime Minister Dominique de Villepin and Finance Minister Thierry Breton have welcomed German efforts to put an end to the socio-economic depression that the country has been going through.

In an agenda-setting speech at Berlin’s Humboldt University on 18 January 2006, Mr. de Villepin spoke in favour of France and Germany being at the heart of what he called “the Europe of projects”. On economic issues, he supported the two countries’ “choice to keep a strong industrial base, while other countries are concentrating entirely on services”. He said a harmonised tax base for enterprises was an important part of a favourable business environment. Mr. de Villepin urged “those member states which are most determined” – referring obviously to Germany, France and possibly some other countries – to come to conclusions on corporate taxes “if possible still under the Austrian Presidency”. 

In a speech in Berlin the following day, Mr. Breton expressed his “admiration” for Germany’s reform efforts to consolidate the country’s budget. He said that the Merkel government’s programme was “ambitious and realistic”, adding that “it obviously goes in the right direction and we support it”. Mr Breton said that “in France too we put much weight on a sound budgetary implementation […] and on holding on to the commitments that we have made”. 

Whereas Mr. de Breton expressed hope that France will stay below the 3% threshold for the budgetary deficit imposed by the Stability and Growth Pact, Germany is bound to exceed it for the fifth time in a row. 

In the Franco-German tax row, France seems to be giving up on hopes to introduce a reduced VAT of only 5.5% for restaurant visits, as promised by French President Chirac last year. 

In the second half of 2005, the traditionally close relationship between Germany and France was overshadowed by the two governments' opposing views on a number of issues, among them the Common Agricultural Policy and the future of the EU's VAT relief scheme for labour-intensive services. After the inaugural visits of Mr. de Villepin and Mr. Breton to Berlin, were they met their counterparts in Germany's new government, it looks as if the two countries are moving closer together again.

  • On 23 January 2006, German Chancellor Angel Merkel and French President Jacques Chirac will come together for an informal meeting in Versailles 
  • On 25 January 2006, The Commission will publish its evaluation of member states' Lisbon national action plans
  • On 6 - 7 February 2005, the Austrian presidency will hold, in Vienna, an informal high-level meeting on taxation

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