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Merkel Urges France Reforms Suggesting Lower Deficit Will Follow

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Aug. 27 (Bloomberg) -- Chancellor Angela Merkel urged French President Francois Hollande to press ahead with economic reforms, while hinting he has flexibility in the pace of deficit reduction.

The German chancellor cited the risk to market confidence when governments “always” run deficits and the need to recognize “that higher spending doesn’t create growth,” her first comments on France since Hollande purged cabinet ministers who opposed spending cuts.

“We can talk about the question of whether you have a 2 percent deficit or 3 percent, or 1 percent, or a balanced budget like us,” Merkel said during a panel discussion with reporters in Berlin today. “What’s at issue in France is to really do those structural reforms. And the French president has announced them.”

It’s “very important that we support each other on such reforms,” said Merkel, whose austerity-led policies in response to the euro area’s debt crisis have grated on policy makers across much of the currency bloc.

The French government abandoned its 2014 deficit targets in August after the economy unexpectedly failed to grow for a second straight quarter.

Economy Minister Arnaud Montebourg and two other French cabinet members were replaced yesterday after denouncing the Socialist government’s adherence to “absurd” austerity policies. The French government “is at work to accelerate reforms,” Prime Minister Manuel Valls said today.

To contact the reporter on this story: Arne Delfs in Berlin at adelfs@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Tony Czuczka, Leon Mangasarian

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