The growth-versus-austerity debate was renewed at a meeting of finance ministers in Brussels today, as euro-area governments attempted to coordinate budget policy for 2014 using powers that were introduced earlier this year as part of their response to a debt crisis now in its fifth year.
“No, no, no,” Italian Finance Minister Fabrizio Saccomanni told reporters when asked whether his government would modify its budget. “Reducing the debt load is also our goal, and we managed that both with fiscal policies by reducing the shortfalls and with additional measures that they have now fully understood.”
National budgets are under pressure after the euro zone’s nascent economic recovery nearly ground to a halt in the third quarter. The 17-nation economy expanded 0.1 percent, after 0.3 percent growth in the second quarter, with unemployment at a record 12.2 percent and inflation at its lowest level in four years. The European Central Bank is considering combating the torpor by pushing interest rates into negative territory for the first time.
Germany remains largely untouched by the slowdown, with figures today showing business confidence surged to the highest level in more than 1 1/2 years.
That’s the underlying reason why the Germans don’t see any need for stimulus. At the same time, Chancellor Angela Merkel has signaled her intention to support a national minimum wage as a concession to the Social Democrats, the party she defeated in an election on Sept. 22 and with which she is trying to form a coalition. The move would help spur domestic demand in Germany, which the EU and southern euro-area nations have said is needed to rebalance the bloc’s economy by boosting exports from struggling countries.
“It’s important, even fundamental, to reduce deficits,” French Finance Minister Pierre Moscovici said. “But we also have to give more muscle to growth in Europe.” He called for “support for internal demand in countries with external surpluses.”
With EU rules stipulating that countries must not have deficits of more than 3 percent of gross domestic product and debt of no more than 60 percent of GDP, governments have been under added scrutiny to show that their budgets for 2014 would keep them on track to meet those targets.
Last week the European Commission, the EU’s executive arm, said that without changes to draft spending plans Italy would miss its target to reduce its debt and Spain may miss its deficit target because of excessively favorable growth assumptions. While the EU cannot veto national budgets, today’s meeting was intended to bring peer pressure to bear.
Saccomanni’s remarks echoed those of Italian Prime Minister Enrico Letta. “On the European front, for some ayatollahs of rigor, this is never enough,” Letta said in Rome. “But Europe will end up dying of too much rigor, our companies will end up dying.”
Some Italian measures are works in progress that the commission has yet to rule on. These include state-asset sales, a spending review and revaluation of lenders’ stakes in the capital of the Bank of Italy.
Spanish Economy Minister Luis de Guindos said Spain did not have further work to do because “our national plan reform will be enough to comply with the budget deficit targets.” German Finance Minister Wolfgang Schaeuble said any Spanish deficit overshoot will be “extremely small.”
The euro-area’s finance ministers conducted the exercise without having a finalized spending plan from Germany, the largest economy in the euro-area, because of continuing coalition negotiations. Greece, Ireland, Portugal or Cyprus are subject to different conditions having been granted emergency aid.
The commission said it would reassess countries’ budget plans when it issues forecasts for the euro area in February.
To contact the editor responsible for this story: James Hertling at email@example.com