Berlin slams French deficit rules proposal

Germany rejects any changes to EU rules on national deficits, a deputy minister said in comments published Thursday after France called for spending limits to be relaxed due to the financial crisis.

Berlin slams French deficit rules proposal
Photo: DPA

“Modifications of the (EU’s) Stability (and Growth) Pact’s rules are not necessary,” deputy finance minister Joerg Asmussen told the Financial Times Deutschland in an interview.

“The bugetary taps are not wide open forever,” he added.

With many European countries exceeding deficit limits laid down in the pact owing to stimulus packages aimed at fighting the economic crisis, French Finance Minister Christine Lagarde has called for a “specific analysis” of swelling budget deficits.

Under the pact’s rules, European Union countries are bound to maintain public deficits that do not exceed 3.0 percent of gross domestic product and are supposed to work towards a balance or even surplus in times of economic growth.

Public debt is not supposed to exceed 60 percent of GDP.

In 2005, terms of the pact were already eased, mainly at the demand of France and Germany, to account for exceptional pressures caused by economic downturns.

Governments are currently authorised to exceed “temporarily and exceptionally” the 3.0 percent deficit ceiling if they are caught in a recession, as is the case at present.

Authorities can also benefit from longer periods to correct the deficit, if the situation is justified.

These rules have been applied in recent months as lower tax receipts and higher spending to fight the crisis have pushed finances of major European economies well into the red.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.