The leaders of the eurozone’s two biggest economies have put on a united front on tackling Europe’s financial woes, but divisions remain on the best way forward. After talks in Paris, President Nicolas Sarkozy and Chancellor Angela Merkel agreed that lowering VAT was not necessarily the answer. “We’re agreed on coordination, we agree on the need for other measures,” Sarkozy said. “France is going to work on it, and Germany will reflect on it. Acting on a general lowering of VAT, France shares the view with Germany that it could work in certain countries. I am thinking of Britain. What concerns us is falling prices. Should we lower VAT when prices are falling?”
Both agreed on the need to support the car industry, particularly after action in the US to boost motor manufacturing there. Merkel said: “We are seeing lots of measures being undertaken in the United States to support the automobile industry there. Europe has to watch what is happening over there in order to be in a position to react in an appropriate way. Because I can’t imagine that the less environmentally-friendly cars would do better in competition – in the distorted competition – with the most modern and the most environmentally-friendly cars, and Europe will react to that.”
But there is less agreement on public expenditure to fend of recession. The European Commission will unveil ideas on Wednesday, including a likely suggestion that states contribute about one percent of the bloc’s gross domestic product to fund measures. But there was no sign today that Merkel was warming to the plan, which has Sarkozy’s backing.