Calls grow louder for EU to penalize France and Germany

Global Finance, Sep 2003 by Platt, Gordon

EUROPEAN UNION

Pressure is building on the European Union to fine France and Germany billions of euros for not meeting deficit limits under the EU's stability and growth pact.

Finance Minister Gerrit Zalm of the Netherlands says the time has come to start obeying the rules. Countries must be fined for breaching the deficit limit of 3% of gross domestic product for three years in a row, or the EU is really in trouble, Zalm says.

European Commission spokesperson Gerassimos Thomas says the fines could be imposed on three-time violators any time from December 2003 to the spring of 2005. France and Germany, the eurozone's two biggest economies, exceeded the 3% limit in 2002 and seem likely to do so in 2003 and again next year.

The EU set tight budget rules in 1997 at the insistence of Germany, which was reluctant to give up the deutschemark and saw the stability pact as a way of protecting the value of the euro. Although Germany has said it will make an effort to meet the deficit limit, France wants to bend the rules. French President Jacques Chirac has angered other EU countries by calling for the stability pact to be relaxed.

Countries such as Austria, Finland and the Netherlands, which are taking steps to curb their deficits, say there is no room for softening the pact. They say that if France and Germany don't act now to make their over-regulated economies more competitive, there will be even more dire economic consequences in the future. -GP