Eichel accepts warning over high deficit levels in Germany’s economy

Date: 31/01/02

By Peter Chapman

GERMAN Finance Minister Hans Eichel defused a potential rift with the European Commission yesterday after his country was rapped over the state of its public finances.

He said Berlin fully agreed with the Commission on the need for fiscal discipline, playing down its call for ministers to issue Germany with a warning over its high deficit levels.

The Union executive voted in favour of Germany and Portugal receiving warnings because their respective predicted deficits - 2.7 and 2.2 of gross domestic product - were nearing limits set by the EU's stability and growth pact.

EU finance ministers meeting on 12 February must now decide whether to give their stamp of approval to the move.

Eichel said: 'I have no problem with the contents [of the Commission recommendation]. I will do nothing that will cast any doubt on the total agreement between the Commission and the German government as far as the analysis is concerned.'

However, Portuguese Finance Minister Guilherme d'Oliveira Martins was less willing to take the public rebuke on the chin, claiming his country's policy was 'correct'.

Monetary affairs chief Pedro Solbes urged that the warning - the first time the procedure has been invoked - 'should be neither misrepresented nor over-dramatised'.

He insisted that the Commission had little choice but to act, adding: 'If no action was taken in this case it is difficult to see when an early warning would ever be issued.'

Under the stability and growth pact agreed in 1997, member states accepted a progressive series of sanctions aimed at ensuring that deficits do not breach a ceiling of 3 of GDP.

The UK, which came in for mild criticism, dismissed Commission claims that its plans to take the country's public finances into deficit in coming years to pay for investments in chronically under-funded public services did not comply with its EU commitments.

Treasury officials said the country's economy was prudently managed and that London had no intention of scaling back its spending.

German Finance Minister Hans Eichel has defused a potential rift with the European Commission after his country was warned over the state of its public finances.