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Business

EU Finance Meetings Focus on Deficit Busters, Growth

Finance ministers of the EU are holding meetings this week to discuss ballooning deficits, budget rules and possible punishments for France and Germany for violating euro zone deficit levels.

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Germany's deficit is this big, says Finance Minister Hans Eichel.

The series of high-level EU finance powwows taking place this week starts off with a meeting on Monday between the French and German finance ministers in the German town of Trier. High on the agenda of Francis Mer and Hans Eichel is how to face their other EU colleagues, many of whom will be chastising the two heavyweights in the upcoming days for their countries' ballooning deficits and flouting of EU budget rules.

Eichel and Mer travel to Luxembourg Monday evening for a meeting of 12 members of the euro zone. France especially looks set to take some heat for its multi-year deficit busting and refusal to tell Brussels how it plans to solve the problem.

France is forecasting a 2004 deficit of 3.6 percent, after running an expected 4.0 percent this year and breaking EU deficit rules in 2002. The EU's Stability and Growth Pact says a country must keep its deficits under three percent of gross domestic product or face penalties, including stiff fines.

Since Paris has not met a Oct. 3 deadline to say how it plans to reduce its projected 2004 deficit, Brussels is considering drawing up detailed budget recommendations. If it does, it would be the furthest Brussels has gone in enforcing the pact that was designed to protect the euro in the 12-nation currency zone. Moreover, France could be fined up to three billion euros under terms of the Stability Pact

Germany may be next on Brussels' list of deficit violaters, since it is also set to breach the budget rules this year. The German government had forecast a deficit of 3.8 percent, but on Sunday, Finance Minister Eichel said that number could go higher. Germany has thus far managed to stay in the EU's good graces only because it has assured Brussels that its 2004 budget will keep deficit levels under the three percent mark. Many analysts have called that predication overly optimistic.

Mixed Opinion on the Rules

Despite the hot seat France finds itself in, it can count on the support of those who say the Stability Pact has become a straightjacket for countries and denies them the spending flexibility they need to spur economic growth.

"There is the pact. There is the absolute necessity to reduce the deficit, but there is also the necessity, no less absolute, of growth," said Luxembourg's Prime Minister Jean-Claude Juncker, who has said he is "rather against" imposing sanctions on France.

But there are plenty of voices who do not like the idea of two of the euro zone's biggest economies breaking the rules repeatedly. Karl-Heinz Grasser, Austria's Finance Minister, told reporters that the Stability Pact could lose credibility if it were repeatedly flouted without consequences.

"What France is doing is simply a provocation towards all other euro zone countries," he told reporters on Friday. "We must stand ready to initiate serious sanctions if France doesn't give in,"

The Netherlands is also expected to come out in favor of sticking to the letter of the law, especially since the Dutch government slashed government spending in the midst of a recession to keep its deficit under the three percent mark.

Planning for Growth

When the foreign ministers come together on Tuesday for the Ecofin conference, which includes all 15 EU countries, strategies to spur badly needed growth will likely top the agenda. They will be discussing a program plan unveiled by Romano Prodi last week to spend €220 billion on 29 selected EU programs by 2020.

Consultations will also take place on the plans individual states have devised to inject life into Europe's moribund economy. The Italians, who now hold the rotating EU presidency, want to invest in large-scale infrastructure projects like roads and highways. Germany and France put forward a plan in September that looks to create growth by investing in high-tech projects such as broadband networks, digital broadcasting and satellite navigation systems.