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Euro Watch

French and German Leaders Meet as Fresh Signs Point to Regional Recession

BERLIN — Returning to business after their summer breaks, the German and French leaders met here Thursday to discuss the continuing crisis in the euro zone, even as fresh economic data reinforced fears that the region was sliding into recession.

“I feel as though I have never left you,” the French president, François Hollande, told the German chancellor, Angela Merkel, as the two addressed reporters ahead of a dinner meeting where Greece’s fiscal problems were the pressing issue. Antonis Samaras, the Greek prime minister, will be visiting Ms. Merkel on Friday before moving on to Paris for a meeting Saturday morning with Mr. Hollande.

In the days leading up to the meeting Thursday, Ms. Merkel’s office sought to play down expectations that it would produce clear-cut direction, and analysts said they did not expect the leaders to make any new proposals. Instead, the aim appeared to present a united front before the German and French leaders’ respective meetings with Mr. Samaras.

“They want to show that Germany and France are not as different as they are believed to be,” said Claire Demesmay, a political analyst with the German Council on Foreign Relations in Berlin. “It is about communication and sending a strong message, not only to Greece, but also to the markets.”

In their comments to reporters, Mr. Hollande and Ms. Merkel also said they would discuss how best to implement a plan laid out in June for a stronger, Europe-wide banking regulator, a proposal that in some circles is considered a major breakthrough in efforts to resolve the European debt crisis.

“We support going farther and faster with banking supervision with the European Council,” Mr. Hollande said. “Germany and France want to give these guidelines substance.”

Ahead of his own visit to Berlin, Mr. Samaras has lobbied for an easing of the terms international lenders imposed on the government in Athens in return for two huge bailouts. Among other things, Mr. Samaras is seeking a two-year extension of aid repayment schedules, pointing to the depression-level economic contraction Greece is experiencing as a result of the austerity measures the government has had to enforce.

Both Ms. Merkel and Mr. Hollande expressed support for the Greeks on Thursday, but gave no indication that they were willing to budge on the terms laid out in the bailout packages put together by the so-called troika — the European Central Bank, International Monetary Fund and European Commission.

“It is important that we all uphold our commitments and wait for the troika report to see what the result is,” Ms. Merkel said. “I will encourage Greece continue on its path to reform.”

Next month, the troika is to submit its review of progress made by Athens in resolving the fiscal and economic problems that necessitated the bailouts.

In an interview Thursday with the French daily newspaper Le Monde, Mr. Samaras restated his demand that European leaders be more flexible, saying Greece was not asking for additional funds, but that the country had “a need for air, to get our breath back.”

“We are fighting battles on numerous fronts,” he added, “against a devastating recession, against an invasive negative psychology, against extremism and populist demagoguery.”

The German finance minister, Wolfgang Schäuble, told the German broadcaster SWR on Thursday that the decisive issue was how to get Greece back on a track of long-term economic stability that would win back trust of the markets. “More time is not a solution for the problems,” he said.

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Hugo Boss’s headquarters in Metzingen, Germany. The country’s growth engine continues to lose momentum, surveys show.Credit...Simon Dawson/Bloomberg News

In an interview with the German newspaper Süddeutsche on Thursday, Mr. Samaras struck out against politicians who have demanded his country leave the euro zone, warning that such rhetoric damaged Greece’s efforts to repair its economy. Several members of Ms. Merkel’s governing coalition have called for Athens to exit the currency union.

Mr. Samaras told Süddeutsche that every time he heard such demands, he thought: “How am I supposed to privatize state-run companies? Which entrepreneur would invest euros in our country, if he risks getting drachma back?”

But as European leaders struggle with the crisis, surveys of euro zone business sentiment released Thursday supported expectations that the region is already in recession, as Germany is less and less able to prop up the rest of the region. Businesspeople remain gloomy in part because new orders have declined, according to a survey of purchasing managers by Markit, a research company.

The performance of Germany, Europe’s most powerful economy, has been helping compensate for recession in Spain and Italy. But the German growth engine continues to lose momentum, the Markit surveys for August showed. Sentiment in France improved slightly from July, but the survey still pointed to a decline in gross domestic product during the three months ending in September.

Official data on Germany reinforced that view Thursday. The Federal Statistical Office confirmed its estimate last week that Germany grew 0.3 percent in the second quarter of 2012 compared with the previous quarter. But more detailed data on the components of growth showed that although consumer spending improved, there was a worrying decline in investment by businesses in new machinery and other goods.

As the economic pain spreads to Germany and France, political pressure rises for Ms. Merkel and Mr. Hollande to find a solution. There is little chance that growth will recover before businesses regain confidence in the integrity of the euro zone and resume investing and hiring.

“A turnaround in sentiment can only be expected when the future of the euro zone starts to look more secure,” Julien Manceaux, an economist at ING Bank, wrote in a note to clients. “Unfortunately, that does not seem be happening anytime soon.”

Some analysts saw reason for modest optimism in the survey numbers: While the mood among managers remained stuck at levels associated with recession, at least it did not deteriorate any further. Among manufacturers, optimism increased slightly.

“Although it is still too early to sound the all-clear, the data give hope that the recession in the euro zone will end at the turn of the year,” Christoph Weil, an economist at Commerzbank, wrote in a note. “The hope of an end to the recession as the year closes will only be fulfilled, however, if euro finance ministers and the European Central Bank manage to keep the sovereign debt crisis under control.”

Germany has arguably benefited from the crisis, which has driven down its borrowing costs because the country is perceived as a safe place to keep money. The Federal Statistical Office said Thursday that the German public sector, including state and municipal agencies as well as the federal government, reported a surplus of €8.3 billion, or $10.4 billion, for the first half of 2012 because of increased tax receipts.

Unemployment in Germany has continued to fall, which has added to tax revenue from payroll deductions. German governments are expected to report a deficit for the full year equal to 0.5 percent of gross domestic product — a sharp contrast to the large deficits prevalent in the rest of the euro zone.

The meeting Thursday was Mr. Hollande’s second trip to the German capital since winning election in May. The French president has sought a new role for his country, reaching out to southern E.U. members, like Italy and Spain, to provide a counterbalance to the German approach to solving Europe’s debt crisis that Nicolas Sarkozy, the former French president, willingly adopted.

“It’s a more fluid format than the exclusive Franco-German couple that we had seen until the French election,” said Nicolas Véron of the Bruegel research group in Brussels.

Still, for all their differences, the German and French leaders know that they have no choice but to work together to find a way out of the debt crisis.

Jack Ewing reported from Frankfurt and David Jolly from Paris.

A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: European Officials Meet As Signs Point to Recession. Order Reprints | Today’s Paper | Subscribe

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