Zalm: get tough on national deficits

12th November 2003, Comments 0 comments

12 November 2003 , AMSTERDAM — The eurozone's stability pact has to be toughened up and countries like France and Germany, who exceed the agreed budget deficit limit, should be punished, according to Dutch Finance Minister Gerrit Zalm.

12 November 2003

AMSTERDAM — The eurozone's stability pact has to be toughened up and countries like France and Germany, who exceed the agreed budget deficit limit, should be punished, according to Dutch Finance Minister Gerrit Zalm.

Speaking in the Financial Times Deutschland newspaper said the Stability Pact would fail if the participating countries did not keep to the agreement.

"The answer could be that a new rule should be added to the fundamentals of the pact to punish offending governments," Zalm said.

The newspaper said Zalm is the first minister of finance to launch an offensive against errand countries.

The Stability Pact underpins the euro currency which has been adopted by 12 of the 15 EU member states. The Pact commits participating countries to keeping their annual budget deficits to within 3 percent of their Gross Domestic Product (GDP). In theory offenders can face massive fines.

When it was signed there were fears that the smaller and poorer member states would not be able to comply. But for the third year in a row the two biggest eurozone countries, France and Germany, have emerged as the bad boys of the class.

France's deficit is running at 3.6 percent and the French government is seeking to be given a 12-month exemption from the rules of the pact.

Germany's economy is the latest in the eurozone but is likely to record its third year of near-zero growth.

Berlin's position is that more attention must be paid to getting the economy going again rather than merely emphasising the 3 percent limit.

Dutch news agency Novum reports that Zalm is annoyed that most EU financial ministers are willing to go along with France's call for an extension. He believes the ministers' "weak performance" is motivated by fears they might find it necessary in future to run high budget deficits. And more fundamentally, the smaller countries don't want a showdown with their bigger neighbour.

The Netherlands — one of the larger of the smaller EU states — has committed to massive spending cuts until 2007 to stay within the Pact's spending limits. In recent months, Zalm has led the call for France and Germany to do the same.

[Copyright Expatica News 2003]

Subject: Dutch news

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