Merkel raises euro tensions

Deepening splits between Angela Merkel and Francois Hollande erupted into the open Friday as the German chancellor attacked Paris for allowing the French economy to stall.

Merkel warned the policies of the new Socialist French president could destroy the eurozone by bringing the sovereign debt crisis to France itself.

The bleak assessment came on the eve of an important weekend that will see elections in Greece and France and a key G20 meeting of world leaders in Mexico.

“Europe must discuss the growing differences in economic strength between France and Germany,” she said.

Tensions are running so high that Jean-Marc Ayrault, the French prime minister, was forced to deny that Paris had broken off the Franco-German partnership, after Berlin anger at a Franco-Italian summit in Rome on Thursday.

There was a growing sense of crisis in European capitals after British Prime Minister David Cameron took part in a tense conference call with Merkel, Hollande and Mario Monti, the Italian prime minister.

G20 leaders meet in Los Cabos on Monday afternoon for talks dominated by the deepening eurozone crisis and the result of close elections that could put Greece on course to leave the euro.

Eurozone finance ministers are on standby for an emergency telephone conference on Sunday night, if Greek exit polls put the radical Left Syriza coalition in the lead, to trigger contingency plans, including possible capital controls in the event of a run on banks in Greece, Portugal or Spain.

A victory for Syriza could prompt a default and Greek exit of the eurozone.

In the event of political chaos in Greece or a financial meltdown drawing in Spain and Italy on Monday following the result of the Greek elections, an emergency meeting of G7 ministers will be held in the wings of the G20 gathering in the Mexican resort.

As tensions within the eurozone deepened, the German chancellor dismissed “quick fixes” and refused to consider any discussion on pooling debt for Eurobonds or Germany underwriting bank deposits in other eurozone countries.

She hit out at Hollande for blocking EU supervision of national spending and supporting Eurobonds, which she warned would “mask” divergences between Germany and “mediocre” or declining eurozone economies, such as that of France.

“If you look at the development of unit labour costs between Germany and France, differences have now been growing a lot more strongly, a topic that must be discussed,” Merkel said.