Friday

29th Mar 2024

Commission set to warn Germany over budget

The European Commission looks likely on Wednesday to reprimand Germany over its budget deficit, according to the Financial Times. Pedro Solbes, EU commissioner for monetary affairs, is keen for any rebuke to be as mild as possible and will insist that the "early warning" carries no criticism with it. Even so, any such warning is likely to come as an embarrassment for Gerhard Schröder's government, which faces national elections later this year.

Neither the Commission nor member governments want a public row, and so a compromise is still possible before Wednesday. Germany is hoping to fend off a reprimand by gathering the support of large member states (such as France) and smaller member states (such as Portugal and Luxembourg). Portugal in particular will be eager to offer its support to Germany, because it may face a similar reprimand over its budget deficit if Germany is criticised.

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Anna Diamantopoulou, EU Commissioner for social affairs said, according to the Financial Times: "The only debate is over the form that a warning might take. It might be a recommendation, or a straightforward warning under the stability pact."

Under the EU's stability and growth pact, a member states' budget deficit should not rise above 3 per cent of gross domestic product (GDP). The Commission is predicting a German deficit of 2.7 per cent, and some private-sector economists say it could be closer to the ceiling of 3 per cent.

One possible course of action is for the Commission to express concern over Germany's deficit, whilst recognising that it has not been caused by irresponsible fiscal policies but by the slowdown of the economy.

An EU official pointed out that it may be difficult for the European Commission to just sit back and do nothing: "This is a matter of ensuring the credibility and the consistency of the pact. If similar cases appear in the future, we will not be able to enforce them if we do not apply the rules now."

The EU budget commissioner, Michaele Schreyer has earlier proposed her countrymen to set up an internal German stability pact in order to streamline the budget spending of the German Länder.

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