Prime Minister Jean-Marc Ayrault said Paris was determined to press ahead with Berlin on stronger economic governance in Europe to resolve the debt crisis — a persistent German demand but a divisive issue for the ruling Socialist Party in France, where many are reluctant to cede more authority to Brussels.

President Francois Hollande’s policy of showing sympathy to debt-laden nations like Italy and Spain as they face more austerity demands has stirred concern in some quarters that he is not closely enough aligned with Germany’s Angela Merkel.

Yet Ayrault, a German speaker who has input on bilateral issues, said Paris was keenly focused on relations with Berlin, the euro zone’s top economy and effective paymaster.

“The next phase of European construction will only be possible thanks to Franco-German agreement,” Ayrault told an annual conference of France’s Medef business chamber. “The Franco-German couple is more necessary than ever.”

But as Paris and Berlin lay plans for closer economic union, they should not shut out the views of other EU partners, Ayrault said, adding that Italy in particular must play a “driving role”.

His comments, which seemed aimed at silencing any concerns about the Franco-German relationship, were echoed by other senior cabinet members. Foreign Minister Laurent Fabius told a meeting of French ambassadors that the Paris-Berlin axis was “crucial” to Europe.

Finance Minister Pierre Moscovici, meanwhile, told Les Echos newspaper that, while there had been “a period of apprenticeship”, relations with Berlin were now working well. Officials in Berlin have suggested that Hollande, who won power in May with a campaign against German-led austerity, has recognised that he needs to work closely with Berlin to resolve the four-year-old euro zone crisis.

“The French have finally realised that they need us to get things done in Europe,” one senior German official said this week, after a meeting between Moscovici and his German counterpart Wolfgang Schaeuble in Berlin on Monday.

Moscovici told Les Echos he had set up a Franco-German working group with Schaeuble to forge a common position on euro zone issues and competitiveness.

“We are ready to go further in European integration provided each step includes a further element of solidarity. That is why we have not dropped the idea of pooling national public debts,” he was quoted as saying.

DETERMINED TO KEEP GREECE IN EURO

Last weekend, Hollande followed Merkel’s firm line after meeting with Greek Prime Minister Antonis Samaras in Paris, saying Greece must show its commitment to reform before receiving further aid from Europe.

Ayrault, however, made it plain that France continues to favour further support for southern Europe.

“Integration with solidarity that means, in the short term, that we are determined to do everything to keep Greece in the euro zone,” he told the conference.

“It also means strengthened stabilisation mechanisms for our partners in southern Europe. In this context we must push ahead quickly with a banking union,” he said, referring to plans for joint European bank supervision.

Ayrault said that, with the euro zone’s debt crisis weighing heavily on France’s economy, his government’s top priority was to restore stability to Europe and this meant France must stick scrupulously to its own EU deficit-cutting commitments.

He reiterated that France was determined to retain its financial credibility by hitting its 3 percent deficit target next year, though he recognised that this would require paring back spending next year.

The government needs to find some 30 billion euros ($38 billion) i n deficit cuts next year, half of which it has said will come from spending. “But budget restraint alone is not enough, we see that today in the countries of southern Europe: without growth, nothing is possible,” he said.

Ayrault also sought to comfort corporations alarmed by billions of euros in tax rises in this year’s budget, telling the Medef conference that an upcoming tax reform would help to improve France’s flagging competitiveness — an apparent reference to plans to reduce social charges on labour.

“We welcome the prime minister’s speech…but speeches are not enough: we imperatively need in the coming weeks a pro-business budget for France,” Medef chief Marisol Parisot told a news conference. DM

Photo: France’s President Francois Hollande (R) and Prime Minister Jean-Marc Ayrault pose for the traditional family photo of the government outside the Elysee Palace in Paris July 4, 2012. REUTERS/Philippe Wojazer  (FRANCE – Tags: POLITICS)