EU drops deficit sanctions against Germany

10th October 2006, Comments 0 comments

10 October 2006, BRUSSELS/LUXEMBOURG - European Union finance ministers Tuesday dropped multi-billion euro sanctions against Germany for running a budget deficit higher than the EU limit of 3 per cent of gross domestic product. Ministers also agreed to give Hungary until 2009 to slash its ballooning public deficit, extending by one year the EU's previous deadline for such action, EU diplomats said. In addition, Britain received an all-clear for its budget deficit, expected to fall under 3 per cent by the e

10 October 2006

BRUSSELS/LUXEMBOURG - European Union finance ministers Tuesday dropped multi-billion euro sanctions against Germany for running a budget deficit higher than the EU limit of 3 per cent of gross domestic product.

Ministers also agreed to give Hungary until 2009 to slash its ballooning public deficit, extending by one year the EU's previous deadline for such action, EU diplomats said.

In addition, Britain received an all-clear for its budget deficit, expected to fall under 3 per cent by the end of the 2006-2007 financial year thanks to better-than-expected economic growth.

With the German deficit expected at 2.6 per cent of GDP this year, the EU's biggest economy is to meet the bloc's budget rules for the first time since 2001 and a year ahead of target.

Germany has been in the EU firing line for several years for having allowed its deficit to overshoot the 3-per-cent-of-GDP ceiling.

Under the rules aimed at securing a stable euro, the 12 nations using the common currency must keep their deficits below 3 per cent of gross domestic product - a target many have found hard to meet.

Stronger-than-expected revenues and tough control of spending meant that Berlin was on track to reach EU limits this year, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said earlier at the meeting.

He added that the German deficit might even drop to less than 2.6 per cent by the end of 2006.

Germany's firm growth has underpinned a strong recovery in the broader 12-nation eurozone.

Berlin is lifting value-added tax to 19 per cent from 16 per cent in January which experts fear will make consumers spend less, hobbling growth in Germany and Europe.

But EU finance ministers said those fears are overstated as the German economy was already robust enough to ride out the tax bite.

Hungary's budget deficit is set to exceed 10 per cent of output this year - the largest in the 25-nation EU. But since Budapest is not not a member of the euro currency club, the EU cannot impose sanctions on the country for breaching eurozone rules.

The EU commission has said that Hungary's current efforts to slash the budget were "appropriate" but has warned of "substantial risks and challenges."

France had also improved its situation and the deficit would remain under the 3-per-cent-bar, Almunia said, commending Paris for relying on fewer one-off measures to meet the EU limit.

The commissioner also said that Italy next year was likely to bring its finances within EU limits.

Rome aims to curb the deficit to 2.8 per cent from an expected 4.8 per cent in 2006. However, it faces a hard task pushing through new measures such as a clampdown on tax evasion.

Almunia said Greece's budget deficit should meet the 3 per cent rule this year. However, he could not accept its revised figures that includes the country's black economy until the EU has scrutinized Athens' bookkeeping.

Britain is also obliged to try to avoid deficits that exceed the 3 per cent of GDP limit under the EU's Stability and Growth Pact which was designed to underpin the euro currency.

However, the EU has no means to reinforce its budget deficit recommendations as Britain is not a member of the single-currency union.

Eurozone finance ministers said they were cautiously confident about the economic outlook despite the German VAT increase, volatile oil prices and rising interest rates.

Growth in the eurozone is forecast by the EU commission at 2.5 per cent for this year as a whole, nearly twice the 1.3 per cent of 2005, slowing down to 2.1 per cent next year.

DPA

Subject: German news

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