Berlin helping Paris dodge budget slap
BERLIN, Oct 19, (AFP): Germany is helping France to draw up a pact with the European Commission on deficit reduction and structural reforms to win Brussels’ approval of its 2015 budget, a report said Sunday.
The report by the Spiegel news weekly comes a day before French and German economy and finance ministers are due to meet in Berlin to discuss ways of boosting growth and investment in Europe’s two biggest economies.
Paris announced last month that next year’s budget deficit — the shortfall between revenue and spending — will hit 4.3 percent of output, far above the 3.0percent ceiling set by the European Union for member states. The deficit is not expected to drop to that level until 2017.
The EU’s executive branch has around two weeks to decide whether countries’ budget submissions break the rules.
The Commission has new powers to enforce the deficit limit, and could for the first time send the budget back to Paris for changes.
Failure to reach a deal could alarm global financial markets and cause a political crisis at a time when Europe risks slipping into a triple-dip recession.
To avoid such a scenario, Berlin is helping Paris draw up a detailed roadmap, similar to an idea raised by Chancellor Angela Merkel for a binding contract between Brussels and member states, Spiegel said in its latest edition dated Monday.
Budget
German government members regard a refusal by the Commission to greenlight the French budget for next year as unthinkable, according to the weekly.
Spiegel quoted an unidentified senior government member as saying a rejection would “massively strain the GermanFrench relationship.
“It would be depicted as if we were to blame with our austerity craze.”
On Thursday, Merkel told parliament she was confident the European Union would enforce its own budget rulebook with all debt sinners — without mentioning France by name. Slow structural reforms in some European states are triggering deflationary pressures, European Central Bank ( ECB) board member Benoit Coeure warned Friday.
Incremental reforms in Greece, Portugal and Spain had the net effect of triggering “a protracted disinflationary process that is still ongoing,” Coeure said, speaking in the Latvian capital Riga.
By contrast, quick and deep austerity drives in Latvia and Ireland spurred speedy recoveries from deep recessions in both cases, he said.
“Countries that have enacted a more front-loaded reform strategy have, on the whole, seen better outcomes than those that have applied a more staggered approach,” he said.
“Today’s low inflation expectations in the region as a whole may indeed be telling us that the approach was on average too staggered, and that it is time to accelerate,” he added, without specifying the countries he had in mind.
Despite stagnation and a growing mountain of debt in France, its leftist government has refused to approve further spending cuts needed to meet the EU’s budget deficit target before 2017, saying more austerity would only further slow a stagnating economy.
Speaking in Riga at a conference along side Coeure, German Bundesbank president Jens Weidmann warned that the German economy, currently slowing sharply, does not need additional stimulus and any such measures could “backfire via negative confidence effects.”