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French PM warns of lingering economic risks

The prime minister of France, the country perhaps most associated with the cherished "European model" of job security and social safety nets, warned Saturday that it may prove unsustainable.
/ Source: The Associated Press

The prime minister of France, the country perhaps most associated with the cherished "European model" of job security and social safety nets, warned Saturday that it may prove unsustainable because the region's economies are too stagnant.

As Europe and the rest of the world struggle to emerge from the worst economic downturn since the Great Depression, France and Germany have already recorded a small level of growth — 0.3 percent — in the second quarter this year.

But French Prime Minister Francois Fillon noted that while forecasts point to 1 percent growth in the euro zone for 2010. That is half the expected growth in the U.S., and Asia is widely expected to grow at a 4 percent clip.

"With this sluggish growth, we cannot preserve the European social model or reduce our public debt," said Fillon, addressing a high-level gathering of political and business leaders at Italy's Lake Como. "The level of our structural deficits threatens the long-term survival of our economy," he added.

Fillon spoke as finance ministers of the Group of 20 rich and developing countries meeting in London were expected to commit to boosting growth.

The International Monetary Fund has recently estimated global growth in 2010 at 2.5 percent.

EU nervously eyes numbers
But at the Ambrosetti Forum meeting — an annual gathering that is part of a glittering circuit that includes January's World Economic Forum in Davos, Switzerland — there was hand-wringing over Europe's prospects.

Massimo D'Alema, a former Italian premier and foreign minister, warned Saturday that the European Union may come out of the recession weakened, according to the Apcom news agency.

There has long been concern in the European Union that globalization would hasten a transfer of jobs away from its core economies, prosperous but jittery nations where an aging population has come to expect high wages, job security, long vacations, health and other benefits and a comfortable retirement.

Changes could include spending cuts
Fillon warned that European governments will not be able to cover social costs or reduce public debt without a change of course. He called for "refocusing (EU) policies to serve growth and European competitiveness against a background of globalization, and restoring our public finances by means of a concerted plan" that included cuts in public spending.

Such plans would likely find opposition in Fillon's own country, where unions have traditionally been very powerful and many politicians rail against the "Anglo-Saxon model" which favors the efficiency of flexible markets over guaranteeing individuals' quality of life.

While a free-market conservative like his boss — President Nicolas Sarkozy — Fillon still favors the European model and government support for promising industries. He proposed strong investment in research and innovation and said strategic sectors should include energy and climate within a "green growth" plan.

Wolfgang Schussel, who was chancellor of Austria from 2000 to 2007, appeared to agree. "We are insistent on the inflexibility of labor markets more than creating new jobs. We know we have to create more jobs, more innovation."

Italian President Giorgio Napolitano, who opened Saturday's session with a speech from his office in Rome, said the crisis is "bound to have serious consequences in the labor market in the coming months." Napolitano, whose voice is influential in Italy even as his role as president is largely ceremonial, called on Europe to do its part with a united stance as the world tries to come up with new financial institutions.

Nouriel Roubini, a New York University professor widely credited with foreseeing the current crisis, is among the delegates here who are predicting a slow recovery for advanced economies. At a news conference Friday, he said high unemployment will be a problem and predicted that the growth rates in the advanced economies will be low for years.