
Germany widens eurozone split over austerity
The German-French row over the choice between austerity and growth is alive – and growing
New rifts pitting supporters of spending-fuelled growth against proponents of fiscal austerity have opened at the highest levels in Europe, as France and Germany choose to tread different paths on an issue central to the unions economic health.
Germany has given its strongest indication yet that a balanced budget is its paramount objective. Finance minister Wolfgang Schäuble promised this week that his 2014 budget would include 5 billion in additional spending cuts, helping Europes largest economy balance its budget in 2015, a year ahead of schedule.
Schäubles determination to slash spending, coming during a week that included a summit of Europes leaders and a conclave of the eurozones 17 finance ministers, put France on the back foot.
Frances president François Hollande warned this week that the socialist government, which campaigned on a pro-growth platform, would miss its 2013 budgetary targets by a significant margin. Hollandes determination to blend austerity with a higher measure of stimulus chimed with his stance that the continent should not remain forever a Europe of austerity, appeasing global investors at the expense of promoting underlying growth.
Leaders of EU countries meeting in Brussels yesterday morning avoided a clash by issuing a communiqué that included the need for both continued fiscal consolidation and more efforts to stimulate growth, that allowed both sides to claim victory. Particular priority must be given to supporting youth employment and promoting growth and competitiveness, it said. Substantial progress is being made towards structurally balanced budgets and that progress must continue.
Investors are growing increasingly jittery over Frances mounting debt and weak growth. Hollande announced this week that Frances budget deficit would reach 3.7% this year, despite pledging to narrow the gap to 3%. Berlin widened the growing rift with Paris by noting that a widening budget deficit sends a bad signal to the markets and to fellow eurozone members.
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What they are doing is at odds with the gentlemans agreement done so far with other eurozone members, Moec added. And why have they done it? Because its a German election year, and fiscal prudence and book balancing is a vote-winner in Germany.
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