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France and Germany call for tougher budgetary controls

Text by News Wires

Latest update : 2010-05-18

France and Germany are pushing hard for tougher budgetary discipline in Eurozone countries a week after launching a 750-billion-dollar rescue package for debt-ridden European countries.

AFP - Euro area finance ministers battled Monday to defend the euro with no obvious agreement on how fast and hard to slash spending and the German chancellor taking flak for downplaying rescue efforts so far.

Just eight days after the same ministers agreed to concoct a near trillion-dollar lifebelt for the 16-nation bloc, scant additional details were expected on who would be able to access precisely what funds, how and when.
But fears that Europe's debt crisis could tip its economy back into recession, with severe cuts to national spending not necessarily compensated by a boost to exports from a weaker euro, are forcing leaders to act with both short- and long-term measures.
They began their talks with the single currency having fallen to a four-year low of 1.2243 dollars in Tokyo trade -- the lowest since April 2006 -- although it later recovered slightly in Europe.
Luxembourg Prime Minister Jean-Claude Juncker admitted, on arriving to chair the discussions, that he was concerned at the speed of the euro's fall on foreign exchange markets though not about its current levels.
"I am not worried as far as the current exchange rate is concerned, I'm worried as far as the rapidity of the fall is concerned," Juncker said.
He also criticised German Chancellor Angela Merkel for saying on Sunday that Europe was only "buying time" with its loan guarantees and rhetoric.
He said that in his opinion, "certain people would do better to think before they speak," adding that, for the benefit of markets, and of ordinary citizens, "sometimes they would do better to keep their mouths shut."
German finance minister Wolfgang Schaeuble said that the reduction of deficits had to be the "number one objective" in Europe as elsewhere.
"Everyone has to meet that" goal, he underlined.
Germany's constitution now applies a "brake" to deficits from next year, and Schaeuble

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said that the eurozone's Stability and Growth Pact, which theoretically limits deficits to three percent of national output, and debts to 60 percent of Gross Domestic Product, could operate in a similar way.
While the "whole world does not need to be re-modelled in Germany's image," Schaeuble nevertheless said it was a "question" that merited further discussion.
Berlin will be forced to reduce its deficit to a limit of 0.35 percent of gross domestic product until 2016.
Juncker, though, warned that ministers would "have to see how far such a measure could command general support."
Berlin will lay out its thoughts on Friday when EU president Herman Van Rompuy hosts the first meeting of a task force set up to decide rules for common EU economic 'governance' by the end of this year.
Austrian Finance Minister Josef Proell was quoted on Monday as saying such a plan would lead "finally to balanced budgets in Europe," and was one of a number of ministers, including the Belgian and Dutch representatives, who said on arrival that they wanted to raise pressure on Spain and Portugal.
IMF chief Dominique Strauss-Kahn meanwhile said the lack of a single economic environment in which to make the euro "viable in a period of crisis" would force more deep-rooted changes.
"I expect Europe to take advantage of the crisis to restructure and renovate the European institutions," he said.
France's finance minister said that eurozone countries in breach of rules should face severe sanctions, including the suspension of European voting rights.
"They must be daunting," Christine Lagarde was quoted as saying. "We could for example consider withholding money from the (EU) structural and cohesion funds... then there is the possibility of removing voting rights," she added.    Ministers can also be expected to express disquiet to Rehn on plans for the EU budget, at 142.6 billion euros (176.4 billion dollars), to increase by up to six percent in real terms next year, when Brussels wants belt-tightening among all member states.
The commission "will have to work much harder than usual to explain that rationale," said one European diplomat.

Date created : 2010-05-17


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