EU finance officials warn France, Germany on budget deficits
Copyright © 2003 AP Online
By PAUL GEITNER, AP Business Writer
BRUSSELS, Belgium (January 20, 2003 6:19 p.m. EST) - European Union finance
ministers Monday leaned on France to slash its budget deficit to avoid undermining
the stability of the euro, despite Paris' insistence that its weak economy requires
stimulus, not restraint.
A new attempt to end years of wrangling over how to clamp down on cross-border
tax dodgers also was on the agenda for EU finance ministers at their two-day
meeting. Diplomats said resolution was far from assured.
Ministers agreed Monday night to hit Germany, whose budget is in even worse
shape than France's, with a harsher reprimand. Chancellor Gerhard Schroeder's
government has already moved to raise taxes and pledged to reduce its deficit this
year.
In a way his hands are tied since it was Germany that insisted on strict budget
discipline when the euro rules were drafted a decade ago, to prevent countries with
a history of red ink from weakening the shared currency.
Diplomats said the EU was unlikely to push Berlin for more cuts at Tuesday's full
session, given that the tough measures already have helped drive Germany, the
euro zone's largest economy, close to recession - threatening the entire continent's
recovery.
With an eye to that danger, French President Jacques Chirac insists it's not the right
time for France to "pursue restrictive budgetary policies." Instead, he has stuck to
election promises cut taxes and raise spending on police and defense.
Despite France's recalcitrance, EU ministers late Monday agreed also to issue an
"early warning" on Tuesday to France, arguing that inaction risks undermining the
euro's stability.
Dutch Finance Minister Hans Hoogervorst said the decision will help "restore
somewhat" the credibility of the EU's budgetary rules.
France predicts its budget deficit will reach 2.9 percent of gross domestic product
this year, close to the 3 percent limit under EU rules. Germany's soared to 3.8
percent last year, triggering the harsher treatment.
Also Tuesday, finance ministers take up a new proposal to thwart tax dodgers who
hide money in foreign bank accounts.
EU spokesman Jonathan Todd said there were "grounds for optimism" that an
agreement could be reached after more than a decade of discussion. But many
details remain open, including the level of a withholding tax to be introduced. |
