France and Germany get warnings from Solbes over budget deficits

Date: 14/11/02

THE European Commission has issued budget warnings to Germany and France, saying Berlin will overshoot a deficit limit this year and Paris risks doing the same in 2003.

Pedro Solbes, the commissioner for economic and monetary affairs, said he was pressing ahead with an 'excessive deficit procedure' against Germany after forecasts showed that the budget deficit for 2002 would reach 3.8 of national income.

The EU's stability and growth pact sets down a 3 ceiling - ironically this was at the insistence of Germany when the euro was launched in 1999.

Solbes said the Commission was preparing to issue an early warning to France because forecasts predicted a 2.9 deficit next year - too close for comfort to the limit.

Under the EU budget rules, Germany and, later, France could eventually incur fines - although this is unlikely if the countries take measures to balance their books.

Solbes said promised reforms by the new German coalition were 'very encouraging'.

But he insisted there must be 'full and timely implementation' in order for Germany to avoid breaching the 3 limit for a second year.

On France, he said the situation was 'worrying' because the country risks breaching the threshold next year in the event of 'slippages' in implementation of economic policy.

German Chancellor Gerhard Schröder and his Finance Minister Hans Eichel said they 'understood' the decision.

French spokesman Jean-François Cope said Paris, too, would take into account a Commission warning.

But he said the country's new centre-right government would be tempted to send a copy to Laurent Fabius, the former socialist finance minister whom it holds responsible for the budget woes.

The dual warning ironically comes after France and Germany revived their old alliance at last month's Brussels summit.

Solbes' comments came as he presented economic forecasts for 2002-2004 for the EU and candidate countries. He said he expected the eurozone to achieve economic growth of just 0.8 this year and 1.8 in 2003.

However, growth is expected to be stronger in EU candidate countries. The ten countries hoping to join the Union in 2004 are predicted to average 2.1 growth in 2002.

Growth should then jump to around 4 next year and 2004, Solbes added.

He also said war with Iraq would affect growth but that the impact would be hard to calculate.

The European Commission has issued budget warnings to Germany and France, saying Berlin will overshoot a deficit limit in 2002 and Paris risks doing the same in 2003.

ESO: In Focus: Economy: European Commission publishes Autumn Economic Forecasts 2002-2004 for the euro area, the European Union and the candidate countries, November 2002 http://www.europeansources.info/record/economy-european-commission-publishes-autumn-economic-forecasts-2002-2004-for-the-euro-area-the-european-union-and-the-candidate-countries-november-2002/

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