Schroeder defiant after escaping EU sanctions
Chancellor Gerhard Schroeder remained defiant today after Germany and France faced down a threat of EU sanctions over their ballooning budget deficits, angering smaller member nations and sparking concern about the euro’s stability.
Addressing parliament in Berlin, Schroeder derided the European Commission and insisted that supporting Germany’s fragile economic recovery with a planned January 1 tax cut was more important than fiscal restraint.
“We could easily have met the EU Commission’s demand,” but only at the cost of giving up the tax cut and putting the recovery of Europe’s largest economy at risk, Schroeder told lawmakers.
Germany and France risked huge fines for their overspending, which has left them in breach of EU budget rules meant to protect the euro’s value.
Anger about yesterday’s exception for the two European powerhouses ran deep among smaller EU countries, opening a new divide on a continent at odds over Iraq and a planned EU constitution – and threatening the wider goal of building a European economy to rival the United States.
Schroeder brushed aside the concerns. Taunting critics in Germany’s conservative opposition, he said “anyone who wants to march in step with the Commission” would have to offer ways to finance the tax cut.
Anything else, he said, is “not a serious economic discussion”.
Under pressure from Brussels and the European Central Bank, Schroeder has initiated cuts in welfare payments and pensions. But he has dug in against further demands to rein in spending – or drop accelerated tax cuts that could boost his flagging public support.
Schroeder stuck to his view that the EU’s Growth and Stability Pact, which includes a 3% cap on budget deficits, has leeway.
“I don’t believe the pact is dumb. I just believe it needs to be open to interpretation – and is open to interpretation,” he said during the lower house’s budget debate.
Three years of near-zero growth and a jobless rate of over 10% have left the country facing a huge tax shortfall and a ballooning bill for welfare benefits - meaning Berlin will join Paris in breaking the EU deficit limit for a third year in 2004.
Germany’s stand against the EU was widely criticised in the media – with Finance Minister Hans Eichel taking a direct hit.
“Eichel is wrecking our money and Schroeder is applauding,” said Bild, Germany’s most-read newspaper. “The dam of the stability pact has been blown up. The road is open for inflation.”
The resonance was similar in France, where the left-leaning newspaper Liberation said the stability pact had ended up in “the trash can of the young history of the common currency.”
But the most lasting damage could be to Europe as a whole, where Germany now stands accused of hypocrisy as well as using its economic and political might to bend the rules in its favour.
A decision to water down the pact was widely expected. But the split between countries such as France and Germany on one side, and the smaller Netherlands, Austria and Finland and the Commission on the other “is potentially dangerous for the future of European integration,” said Lorenzo Codogno, an economist at Bank of America in London.
The European Central Bank warned that Tuesday’s decision carried “serious dangers,” suggesting it may resist lower interest rates that would give European economies a boost.
Some EU leaders point to the bitter irony of Germany flouting rules draw up at the insistence of former Chancellor Helmut Kohl to persuade Germans that it was safe to swap the mighty mark for a currency shared with serial overspenders such as Italy and Spain.
Spain has since got its finances under control – unlike Germany.
“Treaties have to be respected, they have to be equal for everyone and so do the rules,” Spanish Prime Minister Jose Maria Aznar said.
If other countries had been scolded by Brussels, “the treaties would without doubt have been applied automatically,” Aznar said.
