France's request to delay a goal for eliminating its budget deficit does not break EU budget rules, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said Tuesday.
Trying to back out of a voluntary goal for all 13 euro nations to reach zero deficits by 2010, French President Nicolas Sarkozy on Monday took the unusual step of laying out his plans to reform France's sluggish economy, promising he would try to clear the annual deficit by 2010 - but could not guarantee it until 2012.
Almunia said this did not mean Sarkozy was rejecting the 2010 deadline. “It's a very different thing from saying 'I don't want 2010, I want 2012 instead,”' he told reporters. Sarkozy wants to slow down the pace of debt reduction to fund tax cuts aimed at creating more jobs - but he sought understanding from other euro nations not to hold him to a tight deadline. Almunia said he got their support to make much-needed reforms but he also got a lecture that trying to kickstart the economy did not mean abandoning debt reduction.
“Everyone who took the floor ... reminded the French president that budgetary discipline and reform are not irreconcilable, they go hand in hand,” said Almunia. “You can achieve growth and also maintain budgetary discipline and rigor. Euro nations usually coordinate economic policies to keep their shared currency stable and trusted, agreeing informally between themselves because there are no binding rules to force them to manage their economies in unison. France's plan to step out of line with a promise made in April had angered several nations.
German Finance Minister Peer Steinbrueck repeated his warning that France had a duty, as the second largest euro economy, to set an example. Bending the rules “has an impact on internal politics in other countries,” he said. Almunia said all EU finance ministers understood the need to cut debt during the current upswing: “We cannot repeat the errors of the past recovery, of the previous decade,” he said.
“Ministers have today shown a strong commitment in this regard. Italy has also warned that it may not be able to make the 2010 deadline and is more likely to eradicate its deficit by 2011. Also Tuesday, EU finance ministers told the Czech Republic on Tuesday that it needed to do more to cut its budget deficit under EU limits because its current spending plan was “inadequate.
While most EU nations are using tax windfalls from their recovering economies to pay off debt, the Czech Republic is running up a deficit that is higher than earlier forecasts as it counts the costs of higher social welfare spending put in place by the last Czech government. It expects to receive a formal warning from the European Commission in September that would give it more time to put things back on track and is currently planning spending cuts that would allow the country join the euro in 2012.
Hungary was also told its budget plans were on track to bring down a budget deficit that is the EU's highest while Austria agreed to increase debt reduction efforts in coming years. (Press Release, pr-inside.com)