Germany looks to juggle the books

4th November 2004, Comments 0 comments

4 November 2004 , BRUSSELS - The European Union's already-battered eurozone stability pact looks set for another bashing at the bloc's summit Thursday, with Germany demanding a watering down of the key budget deficit rule. Berlin's request comes at an awkward time given that the summit will also be debating a gloomy report warning the bloc has failed in its bid to create the world's most competitive economy by 2010. A senior German official, speaking in the condition of anonymity, said Chancellor Gerhard S

4 November 2004

BRUSSELS - The European Union's already-battered eurozone stability pact looks set for another bashing at the bloc's summit Thursday, with Germany demanding a watering down of the key budget deficit rule.

Berlin's request comes at an awkward time given that the summit will also be debating a gloomy report warning the bloc has failed in its bid to create the world's most competitive economy by 2010.

A senior German official, speaking in the condition of anonymity, said Chancellor Gerhard Schroeder will push for revamping the Stability and Growth Pact in the first half of next year under Luxembourg's presidency of the European Union (EU).

Germany will overshoot the euro's budget deficit limit of 3 percent of GDP for a third year in a row in 2004. EU officials predict Berlin will also breach the limit yet again next year - hence the apparent hurry to change the rules before the end of 2005.

Schroeder is looking to remove several areas of state spending used to tally national budget deficits.

The official said Schroeder backs calls to subtract net national contributions to the EU from the budget deficit calculation.

This is a huge sum: Germany is the EU's biggest paymaster with net contributions to Brussels last year worth EUR 9.5 billion.

Schroeder also backs proposals to exclude state spending on infrastructure and scientific R&D from the national budget deficit.

Under current rules, countries which repeatedly break the 3 percent of GDP rule can be subject to massive fines. But this is only in theory and so far no country has ever been fined.

"I think deficit proceedings against Germany and France are, at the moment, in a grey legal zone," said the official, adding Germany was not alone in violating the rule given that two-thirds of the 12 euro single currency members were also in breach.

Germany's repeated breach of the deficit rule has been harshly criticized by euro states with iron spending discipline, including Austria and the Netherlands.

In a move creating a seemingly explosive linkage between reforming the deficit rule and agreeing the overall E.U. budget, the official said the 25-nation bloc's budget - due to run from 2007 to 2013 - would not be decided in 2005 as currently planned but rather in 2006.

"Does it make sense to put pressure on a country which is a big net payer, and which is expected to remain a big net payer, to force it to 3 percent and thus not leave it in a position to remain a big net payer?" warned the official.

Reflecting Germany's more assertive approach to the EU, this appears to be a move to ensure Berlin gets its way on deficits before tough talks begin on how much each country will pay to Brussels through 2013.

Chancellor Schroeder has long stressed that he wants more emphasis to the "growth" element of the budget deficit pact and this requires more state spending in times of economic weakness.

The German economy is expected to grow by 1.8 percent this year after three years of stagnation.

German anger over the deficit rule is being fuelled by a report to be discussed by leaders Thursday saying the EU has failed in its ambitious goal to close the growth gap with the US and Asia to become the most competitive region in the world by 2010.

Chaired by former Dutch Prime Minister Wim Kok, the report warns Europe needs to whip its sluggish economy into shape simply to prevent a lurch into economic decline.

"It's clear that we have underperformed," said Kok at a news briefing Wednesday releasing the report, adding that Europe remained under strong pressure from both the US and Asia.

Kok blamed member states for not undertaking enough reforms to unleash the continent's full economic potential.

The German official admitted the 2010 deadline "was no longer realistic."

But he warned against calls for a new system of "naming and shaming" E.U. member states which failed to carry out reforms.

"To be very honest, I cannot imagine any head of government who would undertake painful reforms because he comes under criticism from Brussels," said the official.

DPA

Subject: German news
 

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