Germany, Greece strike fast at deficits, France dithers

5th July 2010, Comments 0 comments

Germany and Greece, top and bottom of the eurozone economy rankings, each reported rapid progress on Monday in fighting overspending with cutbacks and France geared for an austerity budget.

Developments in the three countries give different perspectives on the overall eurozone and EU sovereign debt mountain that has caused severe strains on financial markets in recent weeks.

Germany, which has led a drive for tough cuts in spending, revealed in a draft budget obtained by AFP a big drop in the expected federal deficit this year.

The deficit is now set to be about 65 billion euros (81 billion dollars) from an estimated 80 billion euros, both because of big budget cuts and unexpected growth.

"Overall, this is a timely chink of light with respect to fiscal woes," commented ING bank analyst Padhraic Garvey.

The German data is significant because Germany has the biggest economy in Europe and is the main EU paymaster behind a rescue for Greece and a safety fund for EU governments.

German Chancellor Angela Merkel has also led an argument that tough austerity and structural reform is vital now and by instilling confidence is also the best way of shoring up recovery.

The German economy shrank by 4.9 percent last year. The government forecasts a bounce back to growth of 1.4 percent this year, and the German central bank forecasts growth of 1.9 percent.

Greece reported an astonishing cut of nearly 42 percent in its central government deficit in the first six months of the year, revealing the extent of cuts and reforms that the prime minister has said will change everything about how the Greek economy works and the Greeks live.

Finance Minister George Papaconstantinou said: "The goal for the year is to reduce the public deficit by 40 percent and we are doing better than that." But he also warned that the economy could shrink by "perhaps around three percent" this year.

Only two months ago, the country was on the verge of insolvency until rescued with a loan of 110 billion euros (138 billion dollars) from the European Union and International Monetary Fund.

In France, the national assembly or parliament debates the budget for next year on Tuesday, with debate in the Senate on Thursday.

France, with the second-biggest eurozone economy, is also central to market perceptions of the general standing of eurozone government debt.

On Sunday, the head of the national audit office, Didier Migaud warned that the nation's finances were in an "extremely serious" condition largely because of a structural deficit.

"We're not at the point of capsizing, but in order not to get to that point, we have to take a certain number of measures," he told RTL radio, Dow Jones Newswires reported.

A week ago the government said it expected public debt this year to amount 83.7 percent of gross domestic product and said it would reach 87.5 percent in 2012.

France, trailing several countries including Britain and Spain in announcing details of big cuts in spending and some tax rises, is trying to cut while also supporting recovery from the global downturn.

A little more than a week after meetings of the G8 and then G20 groups of leading economies in Canada, when a compromise emerged between the US line that Europe should delay budget correction to allow recovery to bloom and the German-British view that cutbacks must be quick and deep, France appears set on a middle way.

Economy Minister Christine Lagarde said on Sunday that she favoured a "subtle dosing" based on "reducing public spending where it will be the least painful for the prospects of recovery of economic activity."

France is committed to reducing its overall public deficit, covering the budgets of central government welfare and local authorities, from a record 8.0 percent of output this year to 6.0 percent next year and 3.0 percent, the EU ceiling, in 2013. State spending, excluding the debt management charge, and the cost of pensions, will be held at the 2010 level.

In Britain, where the government intends to reduce spending by ministries by 25 percent but has told some to plan for 40-percent cuts, the deficit in the year that ended in March 2010 is 11 percent of output.

The government expects the economy to grow by 1.2 percent this year and 2.3 percent next year, and the deficit to fall to 2.1 percent by 2014-2015 and 1.1 percent by 2015-2016.

© 2010 AFP

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