This makes the picture a little clearer, how they twist war into their favor. Leave it to the politicians.
Germany, France, Italy Have Pretext for Budget Breaches: War
By Catherine Hickley
Brussels, March 21 (Bloomberg) -- Germany, France and Italy, already on course to breach the European Union's budget rules as their economies stagnate, now have justification for letting their deficits widen: the war in Iraq.
War poses an ``exceptional'' risk to the economy that allows a temporary easing of restrictions on deficits, EU Monetary Affairs Commissioner Pedro Solbes said at a meeting of European leaders in Brussels that concludes today.
``The war is a good way to reconcile this fiscal slippage,'' said Luigi Buttiglione, an economist and director of Barclays Capital Plc, formerly employed at Italy's central bank. ``There is little that especially France and Germany could and should do to tighten fiscal policy.''
The 12-nation euro economy, of which France, Germany and Italy make up three-quarters, may shrink in the first quarter, the EU predicts. The German economy has barely grown since sinking into recession in 2001. French exports fell to the lowest in more than a year in January.
France and Germany oppose the U.S. attack on Iraq. Italy, while supporting it, is not playing a direct role. Any impact on their budget deficits would come from higher oil prices and a global economic slowdown that would prompt tax revenue to dwindle and welfare costs to rise.
The European Central Bank is prepared to act to buoy growth and stabilize financial markets in case the war deals a further blow to the faltering economy, ECB President Wim Duisenberg said late yesterday after meeting EU finance ministers.
Over the Limit
Under the EU's rules, designed by Germany to protect the euro, countries must limit their deficits to a maximum of 3 percent of gross domestic product. France predicts a deficit of 3.4 percent of GDP this year. Germany says it will only comply with the rule in the event the economy grows at least 1 percent.
After Germany's opposition-dominated upper house of parliament last week rejected tax increases on items from company cars to flowers, Finance Minister Hans Eichel said he won't take any more steps to rein in the deficit.
The opposition Christian Democratic Union described Eichel's tax plan as ``poison.'' Chancellor Gerhard Schroeder, trying to rescue an economy he described as in a `dramatic'' state, last week announced plans to award cheap credit to local governments for building projects that may add to this year's budget deficit.
Solbes invoked the ``exceptional'' rule for Germany last year, saying cleanup costs for the worst floods in a century may be excluded from budget calculations.
Mer's Refusal
France has refused to raise taxes to check the deficit, saying that would cause further damage to the economy. Instead, Finance Minister Francis Mer plans to cut taxes to boost growth. Economists agree with his policy.
``From an economic standpoint, I have nothing against what France is doing,'' Buttiglione said.
Italian Prime Minister Silvio Berlusconi has ruled out taking any extraordinary budget measures this year even though government tax revenue may decline. Analysts expect Europe's fourth-biggest economy to grow 1.3 percent, about half the rate forecast by the government.
EU government chiefs today endorsed more flexible budget guidelines that give more weight to ``cyclically adjusted'' budgets and give countries with debt below 60 percent of GDP more time to close their budget gaps.
``It's the European Commission accommodating France,'' said Klaus Baader, a senior economist at Lehman Brothers. ``This is giving them the excuse'' to overstep 3 percent. |
