Thursday 25 December 2014

Cautious welcome as Germany backs French on growth

John Downing and Donal O'Donovan

Published 29/08/2014 | 02:30

French President Francois Hollande delivers a speech during the annual Conference of Ambassadors at the Elysee Palace in Paris August 28, 2014
French President Francois Hollande delivers a speech during the annual Conference of Ambassadors at the Elysee Palace in Paris August 28, 2014

MOVES to boost the eurozone economy have been given a very cautious welcome in Ireland with a warning that it may overheat the Irish economy.

Both the Government and Irish business welcomed a Franco-German backed move for more investment and growth.

But IBEC's director general, Danny McCoy, also warned that such moves risked overheating the Irish economy, bringing more risks in the medium term.

Hopes of a real European initiative to boost economic growth and jobs grew yesterday as German Finance Minister Wolfgang Schaeuble backed calls by French President Francois Hollande for coordinated action by the 18 member countries of the eurozone currency area.

Mr Hollande, who is battling for his political life, strongly renewed his calls for a growth initiative. He warned that low inflation across Europe and an overvalued euro threatened a prolonged period of economic stagnation.

The development was greeted positively but also with a certain amount of caution in Dublin, with government sources saying measures to stimulate growth were welcome. One official pointed out that Ireland's EU presidency in 2013 took economic growth as its central theme and this was followed through by succeeding countries like Italy.

IBEC's boss Mr McCoy also welcomed the German and French leaders' statements and said they were in line with what his organisation had been saying for nearly two years. He said IBEC believed Irish austerity policies had been necessary after the collapse in autumn 2008 but should have been tapered off some two years ago.

Mr McCoy said IBEC believed that mainland Europe needed economic stimulus but it was clear that the Irish economy was back on the path of growth.

"Ironically, now that the Irish economy is heading back to strong growth, a further European stimulus, while welcome in some ways, as it would help growth and jobs, could bring some considerable difficulties," the IBEC leader said.

He said there was a real danger of inflation and spending getting out of control in a relatively short period of time.

The French president said the government leaders in the eurzone must hold a special summit soon to coordinate pro-growth measures. "The recovery is too weak. Inflation is too low. The euro is too high," he told an annual ambassadors' conference.

On a visit to Paris, Mr Schaeuble said it was important to stimulate investment as economic growth had weakened. Figures released earlier this month showed that economic growth had slowed considerably in Germany in the second quarter of this year, putting the need for stimulus on the Berlin agenda.

"There are signs of a certain economic slowdown. That's why it's important to stay the course," the German finance minister said, stressing the need for resumed economic growth.

Germany has shown little real sympathy for French calls for economic stimulus for the past two years.

Hardline

However, Mr Hollande's hardline action earlier this week, dismissing left-leaning ministers and pledging public spending control, have combined with stalled German growth to change attitudes in Berlin.

Replying to questions, Mr Schaeuble said European leaders should address the economic situation. He also said he was "pushing in the same direction" as Mr Hollande on the principle of boosting growth with more investment.

But the German finance minister said euro exchange rates were a matter for the markets.

He added that national governments must continue reforms but France and Germany had a particular responsibility for the European economy.

Irish Independent

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