Germany took an indirect swipe at France on Wednesday in a row that has erupted in Europe over aid for carmakers and said it would take a stand against rising protectionism when G7 finance chiefs meet this weekend.
France has been criticised by some of its European partners in recent days for its plan to give domestic carmakers 6 billion euros in 5-year state loans in return for a pledge not to close sites in France during the duration of the loans.
Asked about the French aid, German government spokesman Thomas Steg said domestic measures should not create new protectionist barriers.
"In Europe we agreed that countries could introduce national packages, anti-crisis measures to boost and stabilise growth based on their own individual situations. But we also agreed that these should be coordinated and agreed within Europe," Steg told a government news conference.
"For Germany, coordination means that national aid measures should benefit all European countries. If actions are coordinated there will be no competitive distortions between companies and business locations. We do not see the introduction of new protectionist hurdles in the common market as appropriate."
Germany is the world's biggest exporter of goods and its economy is expected to contract by a record margin this year — led by a sharp downturn in foreign demand.
Speaking to reporters ahead of the weekend meeting of finance ministers and central bankers in Rome, Deputy Finance Minister Joerg Asmussen said that Finance Minister Peer Steinbrueck would address the rise in protectionism.
"This is less about what we know as direct protectionism in the form of tariffs and import quotas and the like. It's more about what is now called indirect protectionism," Asmussen said.
"That means if I launch a stimulus program or a bank rescue package and attach conditions to them which indirectly restrict the free movement of goods and services," he added.
CURRENCIES
Asmussen said currencies would likely be discussed at the meeting, which gathers representatives of the Group of Seven industrialised powers as well as Russia.
"As with every G7 meeting, foreign exchange rates will be a topic. But if I were you, I wouldn't expect surprises," he said.
Germany would seek to discuss "exit strategies" from bank rescue plans, Asmussen said. He noted that it was important to find a joint approach to winding down national measures taken to support banks in order to avoid distorting competition.
Germany is still considering how to enable banks to get toxic assets off balance sheet, and Asmussen said the Finance Ministry was pursuing an approach that would target individual institutions, not a centralised "bad bank" model.
Of crucial importance to this process was establishing how to set the price of problematic assets first, yet this was taking time, both in Germany and the United States, he added.
"The U.S. Finance Minister (Treasury Secretary Timothy Geithner) said he still needed a few weeks, (to resolve the price-setting issue)," Asmussen said after noting that G7 finance ministers had held a phone conference on Monday.
Steinbrueck would also urge that measures discussed at a G7 financial market action plan in November be implemented, he added, noting that all areas needed some form of supervision. It was crucial to include hedge funds in this, he added.
"We see a good chance of progress here," Asmussen said.
Germany would back plans to bolster aid for supranational bodies like the International Monetary Fund said Asmussen, noting that Europe's largest economy believed large developing countries should become net contributors to such bodies.
Asmussen said Germany was keen to increase co-operation with Washington and saw signs the new U.S. administration favoured a more multilateral approach to tackling international problems.
