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Europe

EU Takes Softer Line on Pact-Breaking Germany

Brussels and Berlin have clashed over a number of budgetary matters in recent months, but EU Monetary Affairs Commissioner Pedro Solbes on Wednesday took a softer line with Germany over its rule-breaking deficit.

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Solbes wants to make nice with German Finance Minister Hans Eichel.

Presenting a generally upbeat report on the finances of Germany, Portugal, Belgium and Spain, Solbes said he would not require Germany to undertake new steps to bring its deficit back towards the three percent of gross domestic product limit required of euro-zone members.

"I won't force them to take additional measures at the moment," Solbes told reporters in Brussels. Although likely hoping to easing tensions between Berlin and Brussels, he also expressed concern that German growth forecasts could be too "optimistic" to reach Berlin's deficit-cutting goals.

Germany and France, the two largest euro-area economies, have fallen afoul of Brussels by flouting the three percent limit for two years in a row. Both are likely to breach the limit again in 2004. Finance ministers from Berlin and Paris led efforts in November to suspend the sanctions process against those countries currently breaking the EU deficit rules.

That caused the Commission to pursue legal action at the European Court of Justice to enforce the Growth and Stability Pact, which was designed to underpin the euro. The move angered Berlin, which contends disciplinary proceedings are only warranted against countries that are being uncooperative on the budgetary issues.

A softer approach?

The Berlin-Brussels row over the deficit has since spread to German demands to cap the EU budget and Commission warnings that aid for economically depressed eastern Germany could be cut. Solbes' softer approach on Wednesday may suggest that Brussels is hoping to make nice with the largest contributor to the EU budget.

Solbes praised Germany's commitment to take additional steps if needed to get the deficit in line next year. "We think this is very positive," he said. But much will depend on whether Germany manages to live up to its own growth forecasts, which determine if Berlin can get its deficit back under three percent next year.

Solbes said Germany's growth projections for 2004 of 1.7 percent were in line with the Commission's, but added he had "some doubts" about Berlin's forecast of 2.5 percent for 2005. Currently, the EU is forecasting 1.8 percent German growth next year.

Solbes said the main point of contention was that Berlin was expecting quick results from a number of implemented social and economic reforms, whereas Brussels was assuming extra growth was not certain. German Finance Ministry spokesman Jörg Müller said the Commission's pessimism was unfounded. "We believe that, despite difficult conditions, we can meet the deficit criteria next year, because after a three-year phase of stagnation we expect significant growth this year and corresponding potential next year." Müller said, according to the Associated Press.

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