Europe under pressure to slash deficits

17th May 2010, Comments 0 comments

Euro area finance ministers gather later Monday under mounting pressure to defend the euro, with Germany and France pushing hard for tough budgetary discipline.

The talks take place just eight days after the same ministers agreed a near trillion-dollar rescue package for the 16-nation bloc, with details on who can access what funds and how expected from Monday's discussions.

They also come after the single currency fell to a four-year low of 1.2243 dollars in Tokyo trade -- the lowest since April 2006 -- from 1.2358 in New York Friday, although it later recovered slightly to 1.2280 in Europe.

Fears that Europe's debt crisis could tip its economy back into recession, with severe cuts to national spending unlikely to be compensated sufficiently by a boost to exports from a weaker euro, are forcing leaders to act with both short- and long-term measures.

Germany is busy refining potentially far-reaching ideas, a spokesman said on Monday amid persistent fears that the euro could fail altogether, throwing Europe into chaos.

Berlin will lay out its thoughts on Friday when EU president Herman Van Rompuy hosts the first meeting of a task force set up to decide rules for common EU economic 'governance' by the end of this year.

German Finance Minister Wolfgang Schaeuble wants "to discuss with other euro area countries, measures to ensure that the eurozone as a whole is strengthened," German finance ministry spokesman Michael Offer said.

"We think that the (EU) Stability and Growth Pact has not been sufficient to prevent bad budgetary trends, not only in Greece but in other eurozone countries," he said.

Berlin said it would propose measures in three areas -- "better prevention of budgetary crises ... improved political co-ordination and surveillance (and) ... a firm framework for combatting crises in the eurozone."

Despite being pressed to comment on reports that Berlin would seek to impose a European version of its own "debt brake," which enshrines in the constitution a limit on running high deficits, Offer was tight-lipped.

"Individual proposals from the German side are currently being worked out in the finance ministry and I can not pre-empt them here," Offer said.

The Financial Times reported Monday that Berlin would lobby in Brussels for an EU form of its "Schuldenbremse" or "debt brake" that prevents the federal government from running a deficit more than 0.35 percent of output.

Austrian Finance Minister Josef Proell, pushed for just such a measure, which he told Die Welt daily "would lead to a clear capping of new debt, to stricter budgetary discipline and finally to balanced budgets in Europe."

EU rules require member states to run budget deficits of not more than three percent of Gross Domestic Product and keep debt below 60 percent of GDP.

Eurozone countries in breach of the rules on deficits and debts should face "daunting" sanctions, including the confiscation of European voting rights, France's finance minister said for her part.

"We need to check how best to impose sanctions" on fiscal miscreants, Christine Lagarde told German daily Frankfurter Allgemeine Zeitung.

"They must be daunting. We could for example consider withholding money from the (EU) structural and cohesion funds ... then there is the possibility of removing voting rights," she added.

German Chancellor Angela Merkel said on Sunday that recent speculation against the euro "is only possible because of huge differences in the economic strengths and debt levels of member states."

The eurozone's 750 billion-euro rescue package, which includes IMF loans, has "done nothing more than to buy time," Merkel stressed.

Details on who can access, when and how, the new loan guarantees are expected to emerge from Monday's talks.

© 2010 AFP

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