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EUROZONE

French PM takes a swipe at eurozone’s policies

French Prime Minister Manuel Valls has launched a timely tirade against European finance chiefs for their ineffective economic policies. It comes as indicators show the French economy's recovery is lagging behind its neighbours.

French PM takes a swipe at eurozone's policies
French MP Manuel Valls has blasted the eurozone's economic policies. Photo: Pierre Andrieu/AFP

The struggling eurozone's policies have not delivered economic rewards and there is a real risk of deflation, French Prime Minister Manuel Valls said on Friday.

"The economic policies of the eurozone are not effective," Valls said, adding that they "sadly take a long time to have an effect".

"There is a real risk of deflation," Valls said "because at the European level, growth and inflation are lower than what we might have expected".

His comments came ahead of a key meeting of the European Central Bank next week, and as key indicators for the French economy suggest that it is lagging behind the recovery of other leading economies in the European Union.

Valls said the ECB was "powerless" in the face of low inflation and added that the coming months would be "difficult" for Europe.

Unemployment "has reached an intolerable level," he said against a background of record high unemployment in France.

In July, IMF chief Christine Lagarde had warned that low inflation could damage growth in Europe and urged the European Central Bank to maintain a flexible policy.

Declining inflation is a concern because it carries the risk of outright falling prices, known as deflation, which deters consumers from spending in the belief they can wait and buy more cheaply later.

If that happens, demand suffers and companies put off investment, hurting employment and so setting off a vicious circle which can drag down the whole economy.

Valls is struggling to push ahead with reforms of the French economy, which economists say now looks like the weak link in the European Union economiclandscape.

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BUDGET

Paris, Berlin agree on future eurozone budget: French ministry source

France and Germany have agreed on the broad outlines of a proposed eurozone budget which they will present to EU finance ministers in Brussels on Monday, a French finance ministry source said.

Paris, Berlin agree on future eurozone budget: French ministry source
French Economy and Finance Minister Bruno Le Maire (R) and German Finance Minister and Vice-Chancellor Olaf Scholz. File photo: AFP

The common single-currency budget was one of French President Emmanuel Macron's key ideas for protecting the euro, but it caused differences between France and Germany, the region's two largest economies.

French Finance Minister Bruno Le Maire and Germany's minister, Olaf Scholz, will “jointly present a proposition on Monday… about the layout for a budget for the eurozone,” the ministry source told AFP.

“It's a major step forward,” the source said. “We will look forward to sharing with other members.”

The source said the amount of the budget has not been established as the proposal was to first set out the “architecture and main principles” of the budget.

According to a copy of the French-German proposal, the budget would be part of the EU budget structure and governed by the 19 euro members.

Macron will travel to Berlin at the weekend to meet with German Chancellor Angela Merkel where the two leaders will bolster their alliance as champions of a united Europe.

READ ALSO: France and Germany push for compromise on eurozone reform

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