France and Germany not to follow Britain in cutting VAT

Cuts to value-added tax as a response to the financial crisis and a means to boost the economy are not appropriate for Germany or France, German Chancellor Angela Merkel and French President Nicolas Sarkozy said on Monday (24 November) in Paris.

"A general cut in VAT is the response chosen by some countries but is not the right answer for France and Germany," Ms Merkel was reported as saying by French news agency AFP.

She said France and Germany would hold more talks on how to provide "targeted aid" instead.

Mr Sarkozy echoed the German chancellor's position. "When we lower the VAT, what does that bring? Only lower prices. We think other measures, such as emphasising innovation and research, would be more effective for our economies," German agency DPA reports.

The Franco-German meeting in Paris came just hours before Britain was due to unveil a cut to the UK VAT from 17.5 percent to 15 percent.

The VAT stands at 19.6 and 19 percent in France and Germany, respectively.

"The risk that we are running today, taking into account information that is not always easy [to interpret], is that we mistake haste for action," Ms Merkel said.

The two leaders also reaffirmed the willingness they had expressed earlier to help getting Europe's car-makers back on their feet.

"Our determination to help European industry and notably the automobile industry is total and that is a point on which we agree completely," the French president said.

'Not a cent more'

Despite their unanimity on these issues, however, Mr Sarkozy did not manage to increase Ms Merkel's enthusiasm for a Europe-wide plan to boost the economy, which the European Commission is to unveil on Wednesday and which is expected to be worth some €130 billion.

The French president said that the two countries agreed on the need for measures to resist the economic crisis, but added: "France is working on that, Germany is thinking about it."

For her part, Ms Merkel replied: "We will have many joint discussions yet, about thinking as well as about negotiating."

She was categorical, however, that Germany - Europe's biggest economy - was not to spend "a cent more" than what it is already contributing to boost the bloc's economic performance.

Her government earlier this month unveiled a €32-billion plan – amounting to around 1.3 percent of Germany's GDP – for its economy, including measures such as tax cuts, infrastructure projects and cheap corporate loans.

The plan the commission is to present on Wednesday will be discussed by EU leaders during their meeting in Brussels on 11-12 December.