France's German-speaking PM tries to restore Berlin's faith

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By Stephen Brown and Annika Breidthardt | November 16, 2012 1:07 AM EST

France's German-speaking prime minister tried to reassure his worried hosts in Berlin on Thursday that his Socialist government was serious about reducing the deficit and preventing France from becoming the next victim of the euro crisis.

Jean-Marc Ayrault, making his first visit to Berlin since Francois Hollande became French president, started by meeting German Finance Minister Wolfgang Schaeuble, who is reported to have fundamental doubts about France's reform zeal.

Ayrault attempted to change this impression in a speech, begun in German, which emphasised the "shared destiny" of the euro zone's two biggest economies.

"The French economy and its recovery is the priority of President Francois Hollande and my government which came into office six months ago," said Ayrault, stressing that his team had "a clear understanding of the situation in France, and we know what our strengths are".

"I have never for a moment had any doubt about our ability to overcome the difficulties that lie ahead, and I can assure you that France is willing and ready to contribute," he said.

Hollande is under intense pressure to improve his country's economic competitiveness relative to Germany and southern European countries that have implemented painful reforms to bring down their own debt in the face of a crippling three-year crisis.

In response to calls by industrialist Louis Gallois for cuts in labour charges to reverse decades of industrial decline, the French government has announced plans to grant companies 20 billion euros in annual tax credits to lower labour costs.

Ayrault cited this as one example of the "courage" France's Socialist government was showing on economic reforms.

The relationship between centre-right German Chancellor Angela Merkel and the new French president is often contrasted with the close partnership - especially on the euro crisis - she enjoyed with Hollande's conservative predecessor Nicolas Sarkozy.

Ayrault's knowledge of Germany and its language is believed to have been one of the reasons for his appointment - a signal that Hollande valued close ties to Berlin after sharply criticising Merkel's focus on austerity during the French election campaign.

But the two leaders haven't had the smoothest start.

German officials are worried that without bolder reforms, France could get sucked into the crisis that has forced bailouts of Greece, Portugal and Ireland, in what would be a crushing setback for the bloc's efforts to stem the turmoil.

Last week Reuters reported that Schaeuble had asked the German government's council of economic advisers to consider preparing policy recommendations for France, news that stirred outrage among some French.

The prime minister is scheduled to meet Merkel later on Thursday and hold a joint news conference with her at 5 p.m. (1600 GMT).

"I will tell her what the French government has decided to do," Ayrault told reporters before boarding his plane to Berlin.

"When you are friendly partners you need to tell each other what you are doing. Germany also has its issues and its difficulties so we are going to speak about all that and about Europe, stabilizing the euro zone and the issue of growth in Europe," he said.

(Additional reporting by Gernot Heller; Writing by Stephen Brown; Editing by Noah Barkin)

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