Merkel Takes Tougher Line on Neighbors’ Plans in Deficit Fight

German Chancellor Angela Merkel increased pressure on France and Italy to deliver extra economic reforms in exchange for more time to meet budget targets.

The European Commission “has made clear that that, which until now has been on the table, isn’t enough,” Merkel said in an interview with Die Welt am Sonntag. “I would subscribe to that view.”

France and Italy, the euro area’s second- and third-largest economies, have until March to bring the deficits in their 2015 budget plans into line with European Union rules. That largess was granted on condition the governments in Paris and Rome use the time to enact further legislation in pursuit of economic competitiveness.

“The commission has established a timetable for France and Italy to present further measures,” Merkel said. “That’s sensible, as both countries are currently in the middle of a process of reform.”

Italy’s long-term credit rating was lowered last week by Standard & Poor’s, which cited weak growth prospects and high public debt. The downgrade came even after Prime Minister Matteo Renzi won a key vote in the Senate on a plan to overhaul Italy’s labor rules.

In France, Finance Minister Michel Sapin said on Dec. 3 that an additional 3.6 billion euros ($4.4 billion) in budget cuts planned for next year mean that the deficit will decline to

4.1 percent in 2015. EU rules stipulate deficits shouldn’t exceed 3 percent of gross domestic product.

In the interview, Merkel criticized Russia’s actions in eastern Europe and said the North Atlantic Treaty Organization will stand by its members in the Baltic if they are threatened.

Russia’s breach of Ukraine’s territorial integrity “can’t remain without consequences,” Merkel said. “The united European response to Russia’s actions is the right one.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE