French economy minister Christine Lagarde has urged Germany to expand domestic demand because its large trade surplus threatened the competitiveness of other euro zone economies.
Germany and France, the euro zone's biggest economies, have been the driving force behind the single currency and Ms Lagarde's remarks in an interview published today revealed the gap that has opened between them over how best to tackle the Greek crisis and other strains in the zone.
Euro zone finance ministers meet later today, hoping to agree on a way of providing Greece with financial aid, should it request it, without breaking EU rules. A senior EU source has told Reuters bilateral loans and loan guarantees are among measures being considered.
Ms Lagarde said Berlin should encourage domestic demand to boost its partners' ailing export industries.
"[Could] those with surpluses do a little something? It takes two to tango," Ms Lagarde said in the interview with the Financial Times.
"Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs.
"When you look at unit labour costs in Germany, they have done a tremendous job in that respect. I'm not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence."
Last month French president Nicolas Sarkozy and German chancellor Angela Merkel pledged to reinforce their alliance and strengthen economic governance in the wake of the financial crisis.
But Ms Lagarde said that although she was in frequent contact with her German colleague, the issue of trade imbalances was not often discussed.
"You can't ask one player, as big as it is, to pull the whole group. But clearly there needs to be a sense of common destiny that we have together with our partners," she said.
Ms Lagarde did not rule out the creation of a European Monetary Fund that could provide emergency help to prevent euro zone states going bankrupt, but said it could take years to set up and was not a priority. The region should ensure that Greece implemented austerity measures designed to cut its budget deficit, and then show "creativity and innovation" to find scope for tightening financial surveillance and discipline.
She said the current threat of a fine for countries which break the rules outlined in the EU Stability and Growth pact was "not really a deterrent".
The biggest difference between Germany and other euro zone members including France is on the issue of expanding Germany's internal demand, she told the paper.
Ms Lagarde also said she supported an EU plan for closer inspection of credit default swaps on sovereign debt, following reports that they were used to mask the true extent of Greece's debt problems and manipulate the price of Greek debt.
She said she had no evidence of such manipulation but added "the rapidity of movements is intriguing".
Reuters