Tricky talks in Paris

Shortly after European Commission President Jose Manuel Barroso called on France to cut labor costs and reform its pension system in order to cut its public deficit, Francois Hollande asserted Paris' right to deal with its budget as it sees fit.

"The European Commission cannot dictate what we should do, it can only say that France must balance its public finances," Hollande said.

At the same time, though, Barroso announced that the Commission would give not only France but also Spain, Portugal and the Netherlands an extra two years to bring down their public deficit's to below the eurozone's mandatory ceiling of 3 percent of gross domestic product.

"The extra time should be used wisely to address France's failing competitiveness," Barroso told a Brussels news conference, admitting that this message to Paris was "very demanding."

Hollande's government conceded several months ago that it could not reach the 3-percent deficit target this year.

The challenge facing Hollande and German Chancellor Angela Merkel, who are to meet in Paris this Thursday, is to come up with ways of fostering competitiveness and creating jobs, while at the same time reducing debt.

Merkel and the French President are to be joined at their talks by senior executives from leading corporations from their respective countries, including the chairman of the supervisory council of Siemens, Gerhard Cromme, and Saint-Gobain boss Jean-Louis Beffa.

The two leaders originally pledged to come up with joint proposals on improving the management of the eurozone back in January, at the start of celebrations to mark the 50th anniversary of a post-war friendship pact between the eurozone's two largest economies.

The relationship between the conservative Merkel and the Socialist Hollande have not been easy, particularly when it comes to the economic issues. While Merkel has long favored fiscal discipline as a key to creating economic prosperity, Hollande came to power a year ago in part by pledging to soften the blow of financial austerity on ordinary French citizens.

While both leaders have sought to play down their differences, just hours before their talks, a senior member of Merkel's coalition partners, the liberal Free Democrats (FDP) echoed the sentiments of European Commission President Barroso.

"In order to spur growth in Europe as a whole, France needs to implement reforms to increase its competitiveness," Rainer Brüderle, the FDP's parliamentary party leader said in Thursday's edition of the Rheinische Post newspaper. "The first year of the Socialist presidency was a lost year," he added.

pfd/kms (dpa, AFP, Reuters)