German austerity measures an example: Bundesbank chief

9th June 2010, Comments 0 comments

German measures to cut its budget deficit should serve as an example to other eurozone countries who need to put their own public finances in order, central bank chief Axel Weber said on Wednesday.

Given that a "debt brake" will force Berlin to essentially balance its budget by 2016, even more action might be needed, Weber added.

"Especially with a view to the national debt brake, extra measures could turn out to be necessary," the Bundesbank boss told lawmakers in Berlin.

"We should congratulate the Federal government for having taken national and European budget regulations firmly into account," said Weber, who is also a key member of the European Central Bank's governing council.

The German debt brake, now part of its national constitution, should "serve as an example" and send a "strong signal" to the rest of Europe, he told lawmakers in Berlin.

On Monday, the German government said it would try to cut 80 billion euros from the budget by 2014, including more than 11 billion euros next year.

The budget consolidation is crucial even if "international pressure would like to suggest a different path," Weber said in an address to members of Chancellor Angela Merkel's conservative CDU party.

France, the United States and some European Union leaders have urged Germany to boost domestic demand before tackling a deficit that soared as Berlin battled its worst recession since World War II last year.

They argue that his is necessary to keep the recovery on track but in the fall-out from the Greek debt crisis, many governments are now biting the fiscal bullet and reining in their public spending so as to control their finances.

"In our opinion, it is appropriate that the public deficit be brought below three percent (of Gross Domestic Product, the EU limit) by 2012," Weber said.

The German central bank chief also stressed the need to "think seriously" about a procedure that would allow distressed eurozone states to undergo an orderly insolvency, a position hotly contested elsewhere in the eurozone.

Proponents of such a process say it would make governments manage their budgets better and avoid brutal increases in borrowing costs such as those that forced Greece in a debt rescue deal with the EU and International Monetary Fund.

© 2010 AFP

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