France challenges Germany to blink first in euro showdown

France on Wednesday stepped up its fight for a relaxation of the budget rules for members of the eurozone, setting the stage for a clash with Germany.
Speaking at an informal meeting of European Union leaders that was overshadowed by the simmering spat, President Francois Hollande ruled out any further austerity measures to ensure France's budget deficit is brought into line with EU targets earlier than 2017.
Instead, Hollande said, the rules should be eased to reverse flagging growth across the eurozone.
Hollande also made it clear he intends to place France's demand for more time to rein in its deficit at the centre of a summit of EU leaders in Brussels on October 23-24.
"We have to adjust the rhythm of budgetary policy in relation to the challenge of growth," Hollande said. "If everyone imposes austerity, which is not the case of France, there will be an even greater slowdown of growth."
- 'Two wasted years' -
German Chancellor Angela Merkel has made it clear she will resist any watering down of the requirement for EU governments to bring budget deficits under three percent of GDP and to keep them there.
In slightly cryptic remarks at the end of the summit, Merkel underscored that the euro rules had been agreed by everyone. "France has said it will respect its commitments, I think Italy thinks the same thing," she said. "I am confident that everyone will be conscious of their responsibilities."
Aides to Merkel have made no secret of their belief that Hollande's deeply unpopular government has wasted two years in office and has ducked tough challenges on spending curbs and labour market reforms.
Last week, Hollande's government announced that it would fail to meet the deficit target until 2017 at the earliest and ruled out any deepening of a 50-billion-euro ($63.4 billion), three-year programme of spending cuts.
The move was widely interpreted as publicly flouting the ground rules for the single currency. Germany believes the budgetary rigour they impose is key to economic recovery in the eurozone.
The European Commission is currently considering whether to use new powers it acquired last year to force France to rewrite its deficit-busting budget -- a "nuclear" option most Brussels insiders regard as unlikely to be used.
France's latest bid to change the eurozone's economic agenda is backed by Italy but is likely to be given short shrift by Germany's hard-money allies in northern Europe.
Ireland and Spain may also have little sympathy for France, having endured painful restructuring programmes to get their financial houses in order as the price of being bailed out of the mess created by debt and banking crises since 2008.Hollande's move to go on the offensive over austerity came at an informal summit organised by Italy's prime minister, Matteo Renzi, who shares the French leader's thinking and last week told Merkel to stop wagging her finger at the rest of Europe.
The gulf between the EU's warring camps was underlined by comments from Jens Weidmann, the president of the Bundesbank, Germany's influential central bank, in which he backed action by Brussels against France.
"France, as the second-largest euro-area country, it is decisive and needs to serve as a role model," Weidmann, who is also a member of the European Central Bank's governing council, told the Wall Street Journal.
Renzi called the Milan meeting in response to a shock deterioration of the economic outlook in the eurozone's major economies over the summer.
The gloom deepened this week with new data showing a sharp fall in industrial output in Germany and a lowering of IMF growth forecasts for all of Europe.
Weak demand and confidence have brought the French and Italian economies to a standstill while German confidence and exports have been hit by the fallout from the crisis in Ukraine and the resulting EU sanctions on Russia.
- Youth guarantee -The leaders' talks here were preceded by brainstorming sessions involving directors of national employment agencies and labour ministers.
Among proposals on the table is a scheme to help governments provide guaranteed activities to 15-24 year-olds who have been out of work, study or training for four months.
Six billion euros was earmarked for this a year ago but bureaucratic barriers have ensured the bulk of it is still sitting in EU coffers.
France is pushing for the scheme to be extended and the funding to be upped to the tune of 20 billion euros, which Germany opposes.