German wants Europe to adopt stiff budget discipline

20th May 2010, Comments 0 comments

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

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

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

All European Union 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 however.

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

"Those who systematically violate the rules should be punished automatically by a reduction or even total halt on European payments," said a senior German government official who wished to remain anonymous.

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.

Finally, Germany has suggested other European countries follow its lead by incorporating a deficit limit in their national constitutions and wants to create a process by which heavily indebted countries could declare insolvency.

For eurozone members, that 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 a suspension of voting rights, but Europe is tired of drawn-out negotiations, having finally agreed to institutional reform with the Lisbon Treaty which went into 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 salary stagnation.

France wants Germany to boost eurozone growth by encouraging stronger domestic demand, 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 France and Germany, the core eurozone countries, with Paris seeking to move quickly to put out the fire while Germany insisted on setting strict conditions in exchange for loans.

De Maiziere was nonetheless also philosophical, saying that while French President Nicolas "Sarkozy and Mrs. 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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