New EU growth plan unveiled

Chirac and Schroeder: Spending for growth

France and Germany have put forward a plan to kick-start Europe's sluggish economy through a programme of public spending on major infrastructure projects.

German Chancellor Gerhard Schroeder and French President Jacques Chirac on Thursday unveiled a list of ten investment priorities, including plans to beef up France and Germany's digital broadcasting networks, and to link up the two countries' high-speed railway lines.

Speaking at the end of the latest in a regular schedule of meetings between the two leaders, the French president said putting money into major infrastructure projects would help stimulate economic growth.

"Europe should not wait for growth, it should go out and look for it," Mr Chirac said.

Mr Schroeder and Mr Chirac did not say how much their ten-point investment plan would cost, but estimates of 3 billion euros ($3.4bn) have been reported.

The Franco-German investment plan would complement a separate proposal from Italy, which currently holds the European Union's rotating presidency, to boost EU infrastructure spending by 50 billion euros between 2003 and 2010.

Budget tensions

Under the Italian plan, the bulk of the money would come in the form of extra loans from the European Investment Bank, the EU's long-term financing arm.

But Mr Schroeder and Mr Chirac's proposal to revive the economy through increased public spending is likely to draw fire from other EU countries irked by France and Germany's failure to keep within eurozone budgetary rules.

Both countries look set to breach the so-called Growth and Stability Pact - which limits annual government borrowing to 3% of gross domestic product - for the second year running in 2003.

Paris and Berlin have argued for a more flexible interpretation of the rules, saying that governments should have greater leeway to borrow during economic downturns.

But smaller EU members, including some which have pushed through painful austerity programmes in order to keep within the 3% limit, retort that the failure of the eurozone's two biggest economies to abide by the rules will undermine international confidence in the single currency area.

Ironically, Germany, at the time a model of fiscal restraint, was the key architect and strongest supporter of the Growth and Stability Pact during the run-up to monetary union in the late 1990s.