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Franco-German mini-summit to tackle growth, budget

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French Finance Minister Michel Sapin speaks during a press conference during the IMF – World Bank 2014 Annual Meetings on Oct 9, 2014. French and German ministers are due to meet Monday to discuss ways of boosting growth in Europe's two biggest economies, as Paris called on Berlin to step up investment - PHOTO: AFP

[Berlin] French and German ministers are due to meet Monday to discuss ways of boosting growth in Europe's two biggest economies, as Paris called on Berlin to step up investment.

After a massive sell-off on European stock markets last week triggered by a flurry of disappointing economic data, French Finance Minister Michel Sapin and Economy Minister Emmanuel Macron are to meet German counterparts Wolfgang Schaeuble and Sigmar Gabriel in Berlin.

Boosting investment and growth are the official topics on the agenda but France's public finances as well as Germany's investment record will also likely be discussed.

On the eve of the visit, Mr Sapin and Mr Macron called on Germany to increase investment by 50 billion euros (US$64 billion) in the next three years to match the amount Paris is seeking to save from public spending.

"Fifty billion euros savings for us and 50 billion of additional investment by you - that would be a good balance," Mr Macron was quoted as saying by the Frankfurter Allgemeine Zeitung in pre-released quotes in German for Monday's edition.

"It's in our collective interest that Germany invests." Recent data has suggested that the German economy - traditionally Europe's growth engine - is stalling, threatening to pull the eurozone back into recession and put the brakes on the global recovery.

France, grappling with sky-high unemployment and a ballooning budget deficit, has been spearheading a campaign for Germany to soften its stance on fiscal austerity and loosen its purse strings to provide much-needed stimulus.

Both Italy and France have stepped up their calls for the European Union to switch course to focus on growth, not on balancing budgets.

But these demands are being batted away by German Chancellor Angela Merkel, who insists the way out of the crisis is for all eurozone states to stick to agreed rules on the size of their deficits.

It is a simmering row that could threaten to come to a head at an EU summit in Brussels at the end of the week.

While Berlin and Paris agree that something urgent needs to be done, the two nations still appear to differ on what exactly the solution is.

French President Francois Hollande's government has refused to approve further spending cuts needed to meet the EU's budget deficit target before 2017, arguing that more austerity would only further slow a stagnating economy.

But Germany is adamant that all member states stick to the EU's budget rules and press ahead with much-needed structural reforms.

Berlin is also concerned about the lack of progress in Paris in getting its finances in order and in reforming its economy.

Nevertheless, it has refrained from making any public comment in recent weeks on the French budget so as not to antagonise its key ally and trading partner.

A report by Spiegel news weekly said Germany was helping France to draw up a pact with the European Commission on deficit reduction and structural reforms to win Brussels' approval of its 2015 budget.

On Sunday, Mr Macron said he was "absolutely sure" that Brussels would not veto the French budget, which is expected to post a 4.3-per cent deficit in 2015 - overshooting the 3.0-per cent ceiling set by the EU.

The deficit - the shortfall between revenue and spending - is not expected to drop to that level until 2017.

The EU's executive branch has around two weeks to decide whether countries' budget submissions break the rules.

The Commission has new powers to enforce the deficit limit, and could for the first time send the budget back to Paris for changes.

It will be Macron's second trip to Germany in a month following a visit at the end of September with Prime Minister Manuel Valls.

Both capitals have tasked economists with drawing up a catalogue of measures which could revive growth and the measures will be aimed at both Germany and France. AFP