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Anti-austerity camp gets boost

October 13, 2014

Fiscal consolidation has taken center stage in the eurozone as the bloc's 18 members finalize their draft budgets. France is under fire for missing a deficit target and Germany's focus on austerity has left it isolated.

German and Dutch Finance Ministers Wolfgang Schäuble and Jeroen Dijsselbloem
Image: picture-alliance/dpa

Eurozone finance ministers ratched up pressure on France to shore up its budget deficit on Monday as the 18-member bloc's second-largest economy prepared to submit a draft budget for 2015 to Brussels.

France has come under fire in recent weeks for saying it would need until 2017 to bring its budget deficit to below 3 percent of gross domestic product, as prescribed by the European Union.

Eurozone members have until Wednesday to submit their draft budgets for next year to the European Commission.

"The European rules - everyone says this - are there to be respected," German Finance Minister Wolfgang Schäuble said ahead of a Eurogroup meeting.

Luxembourg's finance minister, Pierre Gramegna, struck a similar tone, saying the credibility of EU budget discipline was "at stake."

Focus on austerity

But frustration over France potentially reneging on its economic committments also came at a time when Germany, Europe's largest economy, seemed increasingly isolated in its emphasis on fiscal consolidation.

On Monday, Jeroen Dijsselbloem, the Dutch finance minister and Eurogroup chairman, told the German newspaper Frankfurter Allgemeine Zeitung that Germany must do more to enhance its competitiveness.

He urged Germany to invest more in its road network, digital infrastructure, research and education, saying that Berlin surely had the fiscal leeway to do so. And he mentioned reforms implemented by Spain, Portugal and Ireland in recent years, adding that Berlin would be well-advised not to rest on its laurels.

At the annual meeting of the International Monetary Fund and the World Bank over the weekend in Washington, DC, a number of policymakers also urged Schäuble to tone down his insistance on austerity.

Berlin has doggedly argued that other countries should not stray from their budgets but follow the path of budgetary rigor. But the anti-belt-tightening movement now seems to be gaining momentum, as the German economy has unexpectedly been hit by a slump in exports and drops in factory orders and industrial output.

Schäuble has denied that Germany is in danger of slipping into a technical recession, defined as two consecutive quarters of economic contraction.

Staying the course

On Monday, the spokesman for German Chancellor Angela Merkel, Steffen Seibert, reiterated that Berlin had no intention of straying from its path toward a zero public deficit next year.

"For the government and for the country our efforts to have a balanced budget next year are of high value," Seibert told reporters at a regular news conference.

At first glance, Dijsselbloem's remarks seemed to be playing into the hands of France and Italy. The eurozone's second and third-largest economies have long been arguing that protracted austerity measures would only hurt growth even further.

But on the sidelines of the IMF and World Bank meeting last week, the Eurogroup head said France should not be given more time to reach agreed deficit targets.

"How was this extra time used? It was not used," Dijsselbloem said. "I think we should not do it again."

el,hg/cjc (Reuters, AFP)