France given more time to reach budget targets

French finance minister Pierre Moscovici has promised to keep up the pace of economic reform in return for Paris being granted more time to reach its budget targets. Mr Moscovici and his German counterpart, Wolfgang Schäuble, worked hard in Berlin yesterday to play down recent tensions over the pace of austerity measures.

“We will continue our efforts to tackle the structural deficit,” said Mr Moscovici. “I can promise you that this two extra years will not be used . . as an incentive for laxity or inaction.”

News that the European Commission would give France two extra years to bring its deficit beneath the 3 per cent ceiling prompted him to tell French radio that the "dogma of austerity" was history in Europe. He picked his words more carefully in Berlin yesterday.

At an event to mark the 25th anniversary of the Franco-German Finance and Economic Council in Berlin, Mr Schäuble said it was a “misunderstanding” to view austerity and stimulus as mutually exclusive. But he noted Franco-German co-operation “was the beginning of the EU and a condition for its successful continuation”.

Mr Schäuble saw it as a “priority” to see progress implementing Europe’s so-called banking union. Berlin has called for changes to treaties to ensure two initiatives – a single European bank supervisor and EU-wide bank wind-up mechanism – are watertight against court challenges. Until treaty change is possible, German officials are anxious to move forward with the banking union.

Mr Moscovici said EU leaders should aim to make “decisive progress” on the banking union by the end of June.

French and German central bank governors meanwhile dismissed talk of boosting wages in Germany to stimulate demand and lift the euro zone.

This would “weaken” Germany and, with it, the euro zone, said Bundesbank president Jens Weidmann. His French counterpart, Christian Noyer, said: “This is not about reducing Germany’s performance . . . [but] raising the euro zone’s overall performance.”