Merkel praises Spain's reform drive

Germany will be flexible in considering how existing European Union funds can be used to stoke growth, Chancellor Angela Merkel said today, as she praised Spain's efforts to cut its budget deficit and tackle sky-high unemployment.

Merkel met Spain's Prime Minister Mariano Rajoy in Berlin ahead of an EU summit on Monday at which leaders plan to address ways of stimulating growth and employment. Merkel hopes they'll also complete negotiations on a budget-discipline pact she has championed.

Rajoy's conservative government took office last month. It has embarked on a labor reform drive in the face of an unemployment rate that the finance minister said Thursday hit nearly 24 percent in the fourth quarter; youth unemployment is above 40 percent.

Rajoy set out his reforming credentials in Germany, which has strongly advocated the mixture of deficit-cutting and structural reform he is putting into effect. Spain's problems are a source of concern because it is considered likely too big for the eurozone's existing firewalls to contain if it defaulted.

"We are planning an economic policy which coincides substantially with what is being planned at the European Union level — so we support that and will be at the forefront in all these things, particularly in budget consolidation and structural reforms," he told reporters.

Merkel said that Germany is "following with great respect" Spain's reform program. She also voiced support for Rajoy's call for unused money in existing EU funds to be channeled into job-creation programs.

"I would like to say as regards the (EU) structural and social funds: Germany is prepared to look completely flexibly at what helps in this situation," she said. "We will support everything that helps small and medium businesses, helps hiring, helps jobs."

German officials say they don't immediately have a figure for how much money might be available.

Merkel renewed he efforts to deflect criticism of Germany's focus on austerity — a day after she poured cold water on calls for a big increase in the eurozone's planned (euro) 500 billion ($650 billion) permanent rescue fund. Despite expectations of a eurozone recession, she also opposes outright stimulus programs at a time when Europe is struggling with debt.

"A solid budget and growth are not a contradiction — in the long run, we need both," she said.

"No one says that saving helps on its own," she added, stressing the need for "important reforms" to labor laws. "But we can't do it only by borrowing either, because the European experience is that it is through borrowing that we ended up in the sights of the markets."

Amid Thursday's display of harmony, Rajoy downplayed recent remarks by Spanish Foreign Minister Jose Manuel Garcia Margallo, who said that "Mrs. Merkel, with all due respect ... always reacts a quarter of an hour later than she should."

"This is an issue that already belongs to history," Rajoy said.

AP