Tuesday

27th Jun 2017

German minister calls for EU budget rules to be loosened

  • “Anyone who doubts that austerity has failed should look at the election result of the right-wing parties,” said Gabriel (Photo: Images_of_Money)

Germany’s economy minister has signalled that the EU should loosen its rules on budget deficits to allow governments more space to pursue growth-driving economic reforms.

“No one wants higher debt, but we can only cut the deficit by slowly returning to economic growth,” Sigmar Gabriel said following meetings with French counterpart Arnaud Montebourg on Monday (16 June).

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“Countries that are embarking on reforms must have more time to cut their deficits, but it has to be binding - a binding chance to reform in return for more time,” said Gabriel, who is also the leader of the Social Democratic Party, the junior coalition party of Angela Merkel.

“This is what we intend to put up for debate in the weeks and months ahead as part of a reorganization of European policy,” he said.

The EU’s stability and growth pact requires governments to keep to within the constraints of a 3 percent annual budget deficit and a debt to GDP ratio of 60 percent.

France has been the most high profile country to recently fall foul of the regime. Earlier this month the European Commission warned that Paris would miss the 3 percent target in 2015 despite being given an extra two years to hit the target. France is forecast to run a deficit of 3.8 percent this year followed by a 3.4 percent shortfall in 2015.

Italian prime minister Matteo Renzi has also indicated that the issue will be raised during his country's six-month EU presidency, which starts next month.

Meanwhile, speaking last week at the Brussels Economic Forum, senior IMF official Reza Moghadam called on the EU to scrap its strict deficit targets describing them as a “labyrinth of rules that is difficult to communicate.”

“Debt dynamics i.e., the evolution of the debt-GDP ratio, should be the single fiscal anchor, and a measure of the structural balance the single operational target,” said Moghadam, who heads the Fund’s European department.

Meanwhile, in a break from the economic mantra used by Merkel and her long-serving finance minister Wolfgang Schauble, Gabriel stated that austerity policies had failed.

“Anyone who doubts that austerity has failed should look at the election result of the right-wing parties,” said Gabriel, a reference to last month’s European elections which saw Marine Le Pen’s National Front party top the country’s poll.

Analysis

France falls victim to EU's economic powers

Being singled out for censure by the European Commission is nothing new for the government of Francois Hollande. But the timing of the latest veiled threat from Brussels could hardly be worse.

EU warns France on budget efforts

France must take further action to cut its budget deficit to the EU's 3 percent limit in its upcoming emergency budget law, in a stark warning from the European Commission.

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