Euro zone seeks to soften German opposition to stimulus spending

Sun Oct 12, 2014 6:33pm EDT
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By Robin Emmott

LUXEMBOURG (Reuters) - France and Italy will keep pressure on Germany this week to use government money to revive the euro zone's stagnating economy but in a sign of inertia, a promised list of projects to create growth will not be ready until December.

European finance ministers take the argument to Luxembourg on Monday for two days of talks following last week's International Monetary Fund meetings in Washington. There, German Finance Minister Wolfgang Schaeuble ruled out "writing checks" for the euro zone.

One compromise is an infrastructure investment fund of public and private money, although even the first draft of a list of potential projects will not be ready until December, according to a document prepared for the Luxembourg meeting.

The euro zone's sinking fortunes are raising alarm among global policymakers who fear the bloc is again dragging on the world economy just two years after its last crisis and say the continued strict focus on budget rigor is misplaced.

EU officials are nevertheless seeking last-minute changes to the French and Italian budgets for 2015 to reduce their fiscal deficits, sources have told Reuters -- a sign of the difficult balancing act underway in the euro zone.

Ministers will also hear from European Union and IMF inspectors on Greece's plans to exit its financial rescue program in 2015, a year ahead of schedule.

There are signs that a poor run of German data may be softening Chancellor Angela Merkel's opposition to public spending. Merkel says her government is exploring ways to encourage more investment in the German economy, which contracted by 0.2 percent in the second quarter and could weaken further going into 2015.

The German government will cut its economic growth forecasts for 2014 and 2015 next week, sources have told Reuters, while Britain is also concerned about the impact euro zone stagnation is having on its recovery.   Continued...

Germany's Minister of Finance Wolfgang Schauble speaks during a discussion on "A Reform Agenda for Europe's Leaders" during the World Bank/IMF annual meetings in Washington in this October 9, 2014 file picture.    REUTERS/Joshua Roberts/Files