France, Germany Plan Tighter Industrial Ties

Though harmony ruled the day at the 82nd Franco-German summit in Paris on Thursday, there was also discord in the air.

The German distaste over Paris' handling of the acquisition of the French-German pharmaceutical giant Aventis by a French firm could still be felt. German government officials harshly criticized Paris for meddling in the takeover talks to the benefit of France's Synthélabo. During his speech before the cabinets of the French and German governments, the first such meeting in over a year, President Jacques Chirac acknowledged those differences and said he understood Germany's reservations.

"There was a lot of criticism," he said. "For my part, I regret that very much. When there's criticism, it always contains a kernal of truth. It doesn't just come out of nowhere."

Chirac also sought to assuage his German colleagues by noting that the company's German employees and research labs would be preserved in the deal.

"I think things have been cleared up now. The agreement reached between Aventis and Synthélabo also contains a (clause) guaranteeing jobs and research centers in Germany. I understand that's a real problem for Germany. The federal chancellor insistently pointed that out to me. I think that has now been arranged."

Tensions over Alstom

But the bickering over Aventis may soon be forgotten as officials turn their focus to the beleaguered French industrial giant Alstom, a symbol of French engineering pride, whose units could be prize catches for German industrial groups. Germany's Siemens is currently seeking to take over Alstom's turbine-manufacturing unit.

Speaking ambiguously about the talks, Chirac said that German-French relations also extend to industrial policies. Observers took the statements to mean that Paris is sending a signal to Berlin that it may seek to find an amicable agreement over the Alstom problem rather than the divisive approach it took in the Aventis deal.

Before the end of the month, Chirac and his economics minister, Nicolas Sarkozy, plan to meet with their counterparts in Berlin to discuss industrial policy in more detail. Debt-strapped Alstom, including its railway and turbine businesses, is expected to be a major issue at the meeting. Sarkozy has been a vocal opponent of any sales that would break up the company.

Stability Pact 2.0?

During Thursday's meeting, German Chancellor Gerhard Schröder also discussed the euro Stability Pact, which ensures the strength of the EU's common currency. For several years now, both countries have violated a major provision in the pact that requires euro zone members to maintain a 3 percent cap on deficit spending. And there's no end in sight for the surplus red ink. Schröder also confirmed reports that Germany would likely loosen its fiscal austerity measures.

"In the current situation, we need to create the possibility to apply the Stability Pact, actually, the Stability and Growth Pact -- I always point that out -- in a way that is growth oriented," Schröder said. Earlier this week, Schröder publicly stated for the first time that Germany would like to see changes in the Stability Pact to make it more flexible in difficult economic times. Recently, Germany also admitted it would likely violate the pact in 2005 for the fourth year in a row.

Disgust over Iraq killing

The two leaders also expressed outrage on Thursday over the beheading of an American civilian worker in Iraq, describing it as a heinous crime. "There can be no excuse for this. It is one of the most horrific murders we have seen in recent times," Schröder said.

Schröder and Chirac also condemned the torture of Iraqi prisoners by United States forces. They said such methods belonged to the past. At the same time, the two leaders said praised the United States for acting to bring those responsible to justice. Schröder said it was clear that both the public and the political establishment in the U.S. were horrified by the torture of prisoners.

"It speaks for the strength of American justice how they have moved to get to the bottom of this."