Deficit blow-outs bedevil euro
Australian Financial Review July 11/97
By Andrew McCathie, Berlin
As Europe struggles to introduce a common currency,
near record unemployment has forced Germany to
increase its budget outlays by 14 billion deutschemarks
($11 billion) to DM461 billion.
Germany's Finance Minister, Mr Theo Waigel, is to
outline the Government's new spending plans today, just
days after his French counterpart, Mr Dominique
Strauss-Kahn, detailed how France planned to meet the
strict fiscal conditions for joining the common euro
currency.
French and German participation is crucial to the single
currency project, but Mr Strauss-Kahn insisted that
additional projects costing 11 billion francs ($2 billion)
would be funded within the existing Budget. Mr
Strauss-Kahn also sought to dispel doubts about the new
French Socialist Government's commitment to the single
currency, declaring France "ready for the euro". He said
a job creation scheme and housing package for low
income earners will be financed by cuts in other areas.
Both the French and German deficits are already above
the 3 per cent target for signing up to the euro. Germany
is expected to approve today both a supplementary
Budget for 1997, and the 1998 Budget.
Under Germany's constitution, new borrowings may only
be as high as federal investment, and the exceptional
supplementary Budget has been designed to allow the
Government to increase new borrowings above federal
investment levels.
The supplementary Budget follows the emergence of a
hole of more than DM70 billion in Germany's finances for
this year.
Despite approving only a small increase in defence
spending this week, from DM46.3 billion this year to
DM46.8 billion in 1998, the German cabinet is expected
to end protracted tensions with other European nations
over the Eurofighter aircraft by committing DM850
million to the project. Germany's tax and spend policies
are already under pressure. Talks between the ruling
coalition and opposition Social Democrats over the
Government's plans for tax reform -- which include cuts
of about DM30 billion -- are deadlocked after being
rejected by the opposition- controlled upper house of
parliament.
The expected Cabinet approval for the budget plans
comes after tough bargaining between ministers on ways
of reducing spending to try to meet the requirements for
joining the single currency, as set out in the Maastricht
Treaty on European monetary union.
Today's Cabinet meeting on the 1998 Budget also comes
days after the release of figures showing an 11,000 rise in
those without jobs, indicating the number of unemployed
is stagnating at above 4 million.
But while ministers of Europe's leading economy battled
it out over finances, market sentiment began to shift again
on the proposed common European currency.
Volatility in the European money markets, caused by the
move to create the euro, pushed the US dollar on
Wednesday up past DM1.76 against the mark, after
edging down at the beginning of the week.
The rise in the greenback -- accompanied by the Milan
stock exchange hitting a record high and a fall in the
Italian long bond -- was caused by expectations that the
euro would include nations such as Italy and Spain, which
could result in a softer currency than those it will replace. |
