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Business

ECB's Vanhala: German, French Deficits Endanger Growth

Matti Vanhala, the head of the Finnish central bank and European Central Bank governing council member, said on Monday the budget deficits of Germany and France could hurt the economic recovery of the euro zone. Vanhala, who was attending the annual meeting of the International Monetary Fund and the World Bank in Dubai, told Bloomberg News that German and French plans to spark growth by cutting taxes could backfire if the euro zone’s two largest economies continued to breach European Union deficit limits. “It’s a double-edged sword. There is a continuous risk that this trend will start to spill over into interest rates,” he said. “If they can present credible, strong plans for fiscal consolidation, that will restore confidence.” Officials at the ECB are concerned both Germany and France could top the EU’s 3 percent of gross domestic product deficit limit for a third consecutive year in 2004.