EU Ministers to Give Germany to 2013 to Fix Deficit, Draft Says
European Union finance ministers will give Chancellor Angela Merkel’s government until 2013 to bring Germany’s budget deficit back in line with EU fiscal rules, a draft document shows.
The German government should start reducing the budget deficit in 2011, cutting the shortfall by 0.5 percent of gross domestic product per year, according to the draft recommendation scheduled for adoption by ministers at a meeting in Brussels next week. The deficit, projected to reach 5 percent of GDP next year, should be back below 3 percent by 2013, according to the draft, which was obtained by Bloomberg News.
“In addition, the German authorities should seize any opportunity beyond the fiscal effort, including from better economic conditions, to accelerate the reduction of the gross debt ratio back toward the reference value” of 60 percent of GDP, according to the recommendation.
The document, prepared by a group composed of officials from the 27 EU nations, the European Central Bank and the European Commission, will be discussed by finance ministers at a meeting in Brussels on Dec. 1 and 2.
German Finance Minister Wolfgang Schaeuble has said he will bow to EU pressure to help strengthen the Stability and Growth Pact that was put in place to protect the euro. France has asked for an extra year to cut its deficit to 3 percent of GDP.
Merkel’s government has until June 2, 2010, to outline in detail how it intends to comply with the EU’s consolidation demands, according to the document. Merkel should enact policy measures that would help Germany’s economy grow at a faster pace in times of normal economic growth, the recommendation shows.
Economic Stimulus
EU finance ministers have committed to withdrawing economic stimulus after 2010 and to start reining in deficits that have swelled because of the recession. Germany’s budget shortfall will peak at 5 percent of GDP in 2010, and France’s deficit at 8.3 percent this year, the commission forecast on Nov. 3.
“For this government, the Stability and Growth Pact is not up for discussion and we will do everything to make sure it stays strong,” Schaeuble told reporters in Brussels on Nov. 10. To afford tax cuts promised to voters, Germany needs “a strict budget policy,” he said.
Merkel’s Cabinet on Nov. 9 approved tax cuts for 2010 totaling 6 billion euros ($8.9 billion). The measures, including expanded children’s benefits, are supplementary to about 10 billion euros in tax reductions taking effect on Jan. 1 that were approved in June by Merkel’s previous coalition.