[A-List] EU stability & growth pact: Germany censured

["Michael Keaney" <michael.keaney@xxxxxx>]

EU issues ironic censure to once mighty powerhouse

Andrew Osborn in Brussels
Thursday November 14, 2002
The Guardian

Germany, once Europe's powerhouse and still its largest economy, was
effectively told yesterday that its financial problems are comparable to
Portugal's.

In an embarrassing rebuke, the European commission said it would recommend
that Germany - like fiscally profligate Portugal before it - be ordered to
put its house in order or face large fines.

France, the eurozone's second largest economy, was declared to have a
"worrying" budget situation and Italy to "be approaching dangerous
territory", while Portugal remained at risk, it added.

However it reserved its harshest words for Berlin. Germany's budget deficit
was far too high this year, said Pedro Solbes, EU monetary affairs
commissioner, and looked likely to breach the maximum 3% threshold allowed
under the EU's stability and growth pact. To make matters worse, he said,
the same would happen next year unless Germany took swift, corrective
measures. "Germany is expected to have a budget deficit above 3% in 2002,"
said Mr Solbes presenting the commission's latest economic forecast.

Mr Solbes' recommendation will need to be formally endorsed by EU member
states including Britain before it is implemented, something seen as
happening before the end of the year. The commission's tough line was seen
in some capitals as a sign that Brussels was intent on bringing the debate
about the future of the stability pact to an early conclusion.

In a further sign that the EU's controversial fiscal rulebook is straining
at the seams the commission also announced it would recommend that France be
issued with a formal early warning, the first step in the same censure
process.

Germany's finance minister, Hans Eichel, said that Germany would take steps
to reduce its deficit, projected by the commission to be 3.8% of GDP this
year, to below 3% next year. France, however, appeared less willing to risk
making the slowdown in growth worse by raising taxes or cutting spending.

Mr Solbes said that France's deficit was expected to rise from 2.7% this
year to 2.9% next year and warned that there were real risks that Paris
would breach the 3% ceiling too.

"Next year [France's deficit] will be very close to 3% and there is
significant divergence from the objectives established in the stability
programme," said the commission.

Germany's censure is highly ironic because they insisted on forcing
countries to choose the euro to ensure their deficits remained below 3%.