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Germany may break EU rules
By Kerstin Gehmlich |
January 7, 2009, Wednesday
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Print Edition
Print Edition
GERMAN politicians warned yesterday the country risked breaching the European Union's budget rules if it went ahead with a new stimulus package that could be worth as much as 50 billion euros (US$67 billion).
Chancellor Angela Merkel's coalition has worked to get Germany's finances in order over the past three years, bringing the overall public sector budget into balance and narrowing the federal deficit substantially.
But her government has come under severe pressure to top up a 31-billion-euro stimulus package that was agreed to late last year.
Her conservatives and their Social Democrat (SPD) coalition partners said after five hours of talks on Monday that they had moved closer to agreeing a further stimulus package, their plans are raising new budget concerns within the SPD and Merkel's party.
Steffen Kampeter, budget expert in Merkel's Christian Democrats (CDU), said Germany risked breaching the EU Stability and Growth Pact with the new package and said it must be accompanied by a "binding debt reduction."
Guenther Oettinger, conservative premier of the state of Baden-Wuerttemberg, echoed those concerns, telling the Financial Times Deutschland daily: "A brake on debt is my condition."
EU rules state that countries must not run a deficit bigger than 3 percent of gross domestic product and that their debt must not exceed 60 percent of GDP. Germany violated the deficit rule for four straight years between 2002 and 2005.
Merkel succumbs
Citing budget concerns, Merkel herself long rejected tax relief to stimulate the economy, but she bowed to pressure from her Bavarian allies this week and defended tax cuts.
The coalition partners have said they hope to finalize a new package next week. Merkel is to speak in parliament today to present the new plan.
The stakes in the debate are high for all parties, with several regional elections to take place in Germany this year as well as the federal election.
SPD parliamentary floor leader Peter Struck said yesterday his party could support a conservative proposal to raise the tax-free salary allowance, but he said the SPD will not back other tax cuts due to budget concerns.
Conservative plans also include a proposal to eliminate so-called "cold progression," a process in which taxpayers are bumped into higher tax brackets even when their real incomes have not increased.
Chancellor Angela Merkel's coalition has worked to get Germany's finances in order over the past three years, bringing the overall public sector budget into balance and narrowing the federal deficit substantially.
But her government has come under severe pressure to top up a 31-billion-euro stimulus package that was agreed to late last year.
Her conservatives and their Social Democrat (SPD) coalition partners said after five hours of talks on Monday that they had moved closer to agreeing a further stimulus package, their plans are raising new budget concerns within the SPD and Merkel's party.
Steffen Kampeter, budget expert in Merkel's Christian Democrats (CDU), said Germany risked breaching the EU Stability and Growth Pact with the new package and said it must be accompanied by a "binding debt reduction."
Guenther Oettinger, conservative premier of the state of Baden-Wuerttemberg, echoed those concerns, telling the Financial Times Deutschland daily: "A brake on debt is my condition."
EU rules state that countries must not run a deficit bigger than 3 percent of gross domestic product and that their debt must not exceed 60 percent of GDP. Germany violated the deficit rule for four straight years between 2002 and 2005.
Merkel succumbs
Citing budget concerns, Merkel herself long rejected tax relief to stimulate the economy, but she bowed to pressure from her Bavarian allies this week and defended tax cuts.
The coalition partners have said they hope to finalize a new package next week. Merkel is to speak in parliament today to present the new plan.
The stakes in the debate are high for all parties, with several regional elections to take place in Germany this year as well as the federal election.
SPD parliamentary floor leader Peter Struck said yesterday his party could support a conservative proposal to raise the tax-free salary allowance, but he said the SPD will not back other tax cuts due to budget concerns.
Conservative plans also include a proposal to eliminate so-called "cold progression," a process in which taxpayers are bumped into higher tax brackets even when their real incomes have not increased.
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