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May 20, 2013

Bundesbank Chief Says France Must Take Deficit Cuts Seriously

by Reuters

France has a special responsibility as a euro zone heavyweight to take deficit reduction rules seriously, even though its budget deficit is above target, Bundesbank President Jens Weidmann said in an interview published on Sunday.

Weidmann told the Bild am Sonntag newspaper that the credibility of the new euro zone rules would be hurt if their flexibility were pushed to the limit right at the start.

“The economic developments in some countries have indeed been weaker than expected and the European rules offer in such cases a certain amount of flexibility,” Weidmann said when asked about Italy, France and Slovenia getting more time to fulfill the stability criteria.

“France, but also Germany, have a special responsibility, as heavyweights in the euro zone, to take seriously the new deficit reduction rules created last year to reduce budget deficits,” he said. Weidmann noted that France's budget deficit was still “far above 3 percent.”

“The credibility of the new rules certainly won't be enhanced if one were to exhaust and use up to a maximum the flexibility right at the start,” Weidmann told the newspaper.

“We definitely cannot allow the expectation to rise that at the end of the day the monetary policy will be able to resolve the problems,” he said.

The European Commission decided last week to give France two more years to slash its deficit to below 3 percent of gross domestic product because of the country's poor economic outlook within the recession-hit euro zone.

German Finance Minister Wolfgang Schaeuble praised France's reform efforts and said the decision to give France an additional two years to cut its deficit was “acceptable,” German regional newspaper Rheinische Post said.

“If a worsened situation means it is appropriate to extend the deadline to cut deficit to a maximum of 3 percent, that is acceptable,” Schaeuble said, according to the paper.

Schaeuble said the French government knew what it had to do and added that France was “on the right track.”

“On some points it will perhaps take longer than elsewhere,” he said, adding it should not, however, be forgotten that France's economic structure was different from those of other countries, like Germany.