Germany faces EU fine for overspending

German Minister for Economics and Manpower Wolfgang Clement has got his work cut out

The Commission will begin proceedings against Germany, said Monetary Affairs Commissioner Pedro Solbes, announcing the first stage in a process that may eventually lead to expensive fines.
 
German Finance Minister Hans Eichel had already admitted the country would exceed the three percent spending cap and plans to make huge cuts in pension and healthcare provisions to tackle the problem, a move that will be highly unpopular.

Berlin has estimated deficits of 3.8 percent of GDP for 2002 and 3.1 percent in 2003.
 
“We will see a cautious recovery next year but it’s a slow acceleration with the handbrake on,” said Wolfgang Wiegard, who chairs the German government’s panel of economic advisors.
 
Both Eichel, Clement and Chancellor Gerhard Schroeder said that the balancing act was too tough to achieve even within an EU target of 2006.
 
European Commission spokesman Gerassimos Thomas said however that under Commission guidelines, every eurozone member was united in trying to curb its “structural” deficit.

Bleak times

Eichel: tough to meet EU target even by 2006

The news comes as the Commission announces limited economic growth across the European Union in 2002 – just 0.8% – short of its last estimate by more than half a percentage point.
 
France will also come close to breaching the three percent limit, with budget shortfalls of 2.7% this year and 2.9% in 2003.

The French government’s “safety margin for dealing with negative surprises is virtually absent,” the Commission said.

Solbes said France will receive an early warning notice, also putting it on the road to financial penalties if it fails to bring its deficit in line.

Portugal became the first country to receive a formal reprimand earlier this year after its budget deficit reached 4.1% in 2001.

It too faces fines that could amount to 5% of its GDP. Lisbon’s spending is still dangerously high at 3.4% this year, but it is expected to drop below the limit in 2003.

Punishment

Belgium’s Finance Minister, Didier Reynders, called on the Commission to take steps against Germany and France to demonstrate it does not give favourable treatment to bigger EU members.
 
“Belgium is clear on one point: we have to treat the small and large countries on an equal footing,” said Reynders in an interview with a Belgian newspaper published on Wednesday.
 
Germany was the country that most pushed for penalties on eurozone overspending, a rule enshrined in the Stability and Growth Pact, which was designed to prevent countries such as Italy from high spending.
 
Italy however has avoided breaching deficit tolerance while Germany has fallen foul of its own punitive policy.

Many commentators have argued that the Pact is too inflexible. Its critics include Romano Prodi, the president of the European Commission, who made headlines last month when he called the budget rule “stupid” and “rigid”.