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Germany, France face budget rebuke
BRUSSELS, Belgium -- EU finance ministers are expected to approve tough measures this week to rein in spending by Germany and France and other European countries. The European Commission has set a deadline of May 21 for Germany, the euro zone's largest economy, to adopt measures adopted earlier this month cut its budget deficit this year. Those measures, along with other disciplinary action against EU members, will be put to a vote by ministers on Tuesday. "I can't see any controversial discussion'' of the German case, one EU diplomat told Reuters. The Commission has also warned France and Italy -- the euro zone's second and third largest economies -- as well as Greece and Finland that their deficits were approaching the limit of 3 percent of gross domestic product, as set out by the Stability and Growth Pact. In addition, the Commission -- the administrative arm of the 15-nation European Union -- has reviewed the medium-term budget plans of Austria and Sweden. France could receive an official warning about its overspending on Tuesday. "There might be during the Eurogroup a more lively discussion'' of France, one source told Reuters. Another said France had signalled it would accept the warning. "It is a question of drafting," one source said. "We have to find a compromise text for both the reduction [of deficit] and the timing.'' The Commission has criticised Germany for breaching the deficit ceiling in 2002 -- most economists put the overspending level at 3.8 percent -- and has been warning that it must do more to bring down spending this year. Germany is the second EU country to run afoul of the deficit rules. Portugal faced a similar procedure for overspending in 2001. Germany is struggling to recover from recession, which gripped the country in the second half of 2001. Since then, the economy have barely grown and the unemployment rate has soared to almost 10 percent. The coalition government of Gerhard Schroeder, which was re-elected in September on a promise to turn the economy around, has launched a programme to raise taxes, increase social security contributions and reform the labour market. The Stability and Growth Pact has come under fire from other EU members for encouraging spending cuts at a time when most countries need economic incentives to rekindle growth. "The problems have arisen because these countries have not done what we did in Sweden -- tried to maintain a tight fiscal policy to build up surpluses that can be used when the economic situation deteriorates,'' Swedish Finance Minister Bosse Ringholm said on Friday. "This is a lesson that these countries must learn for the future.'' he said. The Commission's action comes after the world's largest economy fell back into deficit spending. U.S. President George W. Bush has announced tax cuts to boost the economy pushing the country further into deficit. In fiscal 2002, the United States budget deficit came in at $159 billion -- ending four years of surplus.
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