Merkel takes swipe at France as tensions grow

Germany's Angela Merkel criticised France's economic performance on Friday in a growing war of words with its new Socialist President Francois Hollande over how to tackle Europe's deepening debt crisis.

Describing her own country as Europe's "stabilising anchor and growth engine", the centre-right chancellor told German business leaders that Europe should talk about the growing gap between the bloc's two biggest economies and traditional allies.

Tension has risen so much that French Prime Minister Jean-Marc Ayrault felt moved to deny that his country was trying to form a united front with Italy and Spain against Merkel and her drive for austerity in the single currency zone.

But Merkel, possibly irritated by Hollande's meeting with German centre-left opposition leaders earlier this week on euro zone policy, took what looked like a swipe at his expansive policy ideas such as a new decree partially lowering the pension age, which was part of his election campaign.

"If you look for instance at the development of unit labour costs between Germany and France in the past 10 years, then you see that at the start of the millennium Germany looked rather worse or at best as good as our neighbour in a lot of factors, while the differences have now been growing a lot more strongly, also a topic that must be discussed in Europe, naturally," she said.

Hollande, elected last month, has also announced plans to increase the cost for companies of laying off workers after a jump in French unemployment - a move German officials and many economists believe will only exacerbate France's economic woes.

On Friday, Merkel reiterated her view that issuing new debt to finance economic growth is not sustainable and she again ruled out a mutualisation of debt, or euro bonds, to tackle the crisis - a position directly opposite to that taken by Hollande.

Hollande has spoken out in favour of euro bonds and also insists that Europe needs to do more to revive growth to offset its German-inspired focus on tackling budget deficits and public debt.