Global Economics

France Wants Looser Euro Zone Rules


Many EU countries will exceed deficit limits this year due to bailout spending. French Finance Minister Christine Lagarde wants euro rules relaxed

France wants the European Union to soften its stance on budget deficits in response to the economic crisis—a move which would alter the EU's stability pact on which the bloc's common currency is based.

"We should think about a special treatment for the debts currently acquired as a consequence of the crisis," French economy minister Christine Lagarde told Financial Times Deutschland.

She said several member states now have budget deficits as a result of economic stimulus packages and the EU should adopt a milder stance towards the deficits.

"I have no precise answer how we should proceed, but we need a debate," she said.

Currently, member states have to abide by the strict rules of the stability pact and not exceed a budget deficit of three percent of the gross domestic product.

But many countries are now breaching these rules.

For 2009, the EU commission predicted that 13 out of the 16 eurozone countries will go beyond the allowed threshold, and has urged member states to return to the financial discipline as soon as possible

The EU executive has already started excessive deficit procedures against several eurozone countries, including France.

The total debt in the eurozone will reach 83.8 percent of its GDP, the commission predicts.

Ms. Lagarde explained that several member states have "structural deficits" - a term describing deficits formed by the different subsidies and fiscal measures aimed at kickstarting the economy.

Finance ministers are to discuss the issue when they meet at the beginning of next week.

EU monetary affairs commissioner Joaquin Almunia fears that loosening the eurozone criteria could damage the common currency, with greater deficits having the potential to reduce market confidence in the eurozone's economy, and hence also its currency.

Britain's pound has lost significant value this year as currency investors question the health of its economy, one of the worst hit by financial crisis due to its overextended banking sector.

But even supporters of tough fiscal discipline, such as centre-left Dutch finance minister Wouter Bos, have questioned the viability of the stability pact, since it would take member states up to ten years to go get below three percent deficit threshold.

Ms. Lagarde said she was in favour of "collective discipline", but rejected calls from the European Central Bank and the EU commission for an "exit strategy" from the expansionary government spending.

She said the stimulus measures would only bear fruit from September on and it was premature to think about cutting deficits. Instead, the priority should be to safeguard existing jobs and creating new ones, she stressed.

Provided by EUobserver—For the latest EU related news

Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus