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EU Censures Germany on Excessive Deficit


The European Commission, the European Union's executive body, has publicly censured Germany for letting its budget deficit exceed EU limits and warned France that it runs the risk of doing the same thing next year. The criticism of Europe's two biggest economic powerhouses came as the Commission forecast weaker growth in 2003 for the 12 nations that use the euro as their currency.

Germany is the second EU member to be chastised for running afoul of the union's budget rules. As part of the so-called stability pact that underpins the European common currency, budget deficits of countries using the euro cannot exceed three percent of gross domestic product.

The European Commission says Germany will run a deficit of 3.8 percent this year and 3.1 percent next year. The Commission has the power to instruct a member country to get its finances in order. If it does not do so, the country in question could face multi-billion dollar fines.

Portugal was told earlier this year that it had to shape up financially or be fined. But it is ironic that Germany should be the first big EU country to be reprimanded.

After all, it was at Germany's insistence that the stability pact was drawn up five years ago to make sure that what it considered to be countries with little economic discipline adhered to rigid rules.

German Chancellor Gerhard Schroeder says he understands the Commission's decision but promises things will improve in 2003. Earlier this year, Mr. Schroeder fought off an attempt by the Commission to warn it over its then-looming deficit. At the time, analysts said the Chancellor, who was running for re-election, could not afford to be seen as caving in to the Commission.

EU Monetary Affairs Commissioner Pedro Solbes says France should be warned that it could breach the bloc's rules because its deficit will be 2.7 percent of GDP this year and 2.9 percent next year, just barely under the three percent limit.

The conservative government in Paris says it will take note of any warning but maintains that the budget deficit is not its fault and should be blamed, instead, on France's previous Socialist government.

Deficits aside, Mr. Solbes painted a rather gloomy picture of the euro zone economy, sharply lowering its growth forecast for next year from 2.9 percent to 1.8 percent.

He mentioned a slower than anticipated global recovery as the main cause for the revised forecast. He says that things could improve by the middle of next year if confidence returns, oil prices ease and stock markets remain stable.

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