Germany wants Europe to adopt stiff budget discipline

20th May 2010, Comments 0 comments

After agreeing to bail out eurozone partners, Germany wants to impose tighter budgetary discipline through controversial measures ranging from new sanctions to possible expulsion from the eurozone.

The debate is to be launched on Friday at a meeting of eurozone finance ministers under European Union (EU) president Herman Van Rompuy in Brussels.

Other meetings will follow before formal proposals are unveiled later this year.

All EU countries have agreed on the need to strengthen the Stability and Growth Pact, which was supposed to limit government deficits but has been blown out of the water by a historic fiscal crisis.

Not all have the same view of what changes should be made.

Germany seeks to block payments of some EU funds to countries that allow their budget deficits to climb too high, an option already under consideration by the European Commission, the bloc's executive arm.

"EU member states that do not adhere to deficit reduction guidelines should, for a limited time, no longer receive EU structural funds," said a German working paper of which AFP obtained a copy.

Berlin would like to go even further and has called for the suspension of EU voting rights for at least a year, putting recalcitrant countries out in the cold.

Germany also feels other European countries should follow its lead by incorporating a deficit limit into national constitutions, and has suggested the European Central Bank or a "group of independent research institutes" look at eurozone member budgets before they are sent for parliamentary approval.

French President Nicolas Sarkozy said Thursday that his country's constitution should be altered to compel new French governments to sign up to a timetable to balance their budgets.

France would like in general to see "balanced public finance" targets adhered to, while leaving the means up to individual eurozone governments.

Finally, Germany wants to create a process by which heavily indebted countries could declare insolvency, which for eurozone members would probably mean giving up Europe's single currency.

"A country that could no longer be helped would have no other choice than to leave (the eurozone), in its own interest," said Thomas Silberhorn, a member of Chancellor Angela Merkel's CDU/CSU coalition who sits on the parliamentary European affairs committee.

But several countries, including France, and the European Commission are not convinced of the need for such a "nuclear" option.

It would require changes to EU treaties, as would the suspension of voting rights, but Europe is tired of drawn-out negotiations, having finally approved institutional reforms with the Lisbon Treaty which took effect in December.

France does not want to focus exclusively on deficits, meanwhile.

Paris wants to examine problems of "competitiveness" and criticizes the German model of concentrating on exports at the price of domestic demand.

France wants Germany to boost eurozone growth by encouraging stronger domestic consumption but German officials see such calls as a smokescreen designed to deflect attention from other problems.

"We have differences of tradition" with France that concern "respect for the Stability Pact" among other things, noted German Interior Minister Thomas de Maiziere, who is close to Merkel.

He suggested that the Greek debt crisis and its spread to the wider eurozone had caused strains between Paris and Berlin, a point illustrated when France criticised Germany's unilateral decision to ban some speculative financial transactions.

In general however, Paris seeks to move quickly to put out the eurozone fire while Germany insists on setting strict conditions in exchange for loans.

De Maiziere considered the differences with a touch of philosophy, saying that while "Sarkozy and Merkel each have their own approach to problems," in the end "the combination of speed and spadework benefits Europe."

© 2010 AFP

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