Tuesday, February 11, 2003

Solbes Warns Germany on its Deficit

EU monetary affairs commissioner Pedro Solbes today warned Germany not go back on its promise last month to cut its deficit by one per cent this year. The interesting detail about this piece is the suggestion that the warning is aimed as much at the Christian Democrat opposition as it is at Schroeder's government. All-in-all the German picture is not a pretty one, with few attractive short term alternatives, but the 'shot-across-the-bows' aimed at the Christian Democrats seems to confirm my view that the recent election results do not automatically lead to a stronger reform agenda, such easy interpretations miss the real dymanics of the political process since they fail to understand the specific weight of older voters in an aging society.

Germany was warned on Sunday by the European Commission to stick to its plans to cut its budget deficit, in spite of mounting political opposition and the economic uncertainty caused by the Iraqi crisis. The message was a shot across the bows to Gerhard Schröder's government, grappling with sluggish growth and trying to push through unpopular tax rises.But it was also partly aimed at the opposition Christian Democrats, who are threatening to use their grip on the upper house of parliament to block Mr Schröder's attempts to curb the deficit."It is a politically difficult task and I know that economic reforms are not easy in the current climate, but they are also not impossible," Mr Solbes said in an interview with Bild am Sonntag newspaper. "It is essential that Germany this year implements measures to cut its deficit by one per cent of gross domestic product, as it agreed to do in January." Mr Solbes fears that even if Mr Schröder succeeds in forcing through his reforms, Berlin could be in breach of the pact for a second year running in 2003.He warned on Sunday that unless Germany put its public finances in order, it faced serious problems in the medium term, particularly as the pensions crisis starts to bite.Mr Solbes also said Germany must accelerate reforms to boost growth and employment.
Source: Financial Times

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