German Chancellor Angela Merkel hinted she is ready to make a grand bargain with France and Italy by allowing them some leeway in meeting deficit-reduction targets in exchange for measures to make their economies more competitive.
At the end of a two-day European Union summit in Brussels, Merkel echoed comments made by European Central Bank President Mario Draghi in August that countries needed to match the ECB’s loosened monetary policy by themselves taking action to boost domestic demand.
“I’m very grateful to Mario Draghi that he held up the mirror to our eyes,” Merkel told reporters. “If fiscal policy doesn’t react at the same time” as monetary policy, “if our economic measures don’t improve, if our competitiveness doesn’t improve, if our investment policy doesn’t improve -- then we won’t get out of an unsatisfactory situation.”
Merkel’s shift in tone -- two months after Draghi’s speech in Jackson Hole, Wyoming -- may begin to draw a line under a long-running dispute at the heart of the euro area about how to avoid looming economic stagnation.
The German chancellor has previously rejected French and Italian requests for easier treatment as they try to hit EU spending targets, saying that they had to stick to previously agreed deadlines to prevent a re-emergence of the region’s debt turmoil.
Budget Compromise
The EU Commission is halfway through a two-week examination of euro-area governments’ 2015 spending plans and this week raised concerns about the draft budgets of France and Italy as well as Malta and Austria according to those countries’ governments.
Italian Prime Minister Matteo Renzi signaled that he was now prepared to compromise with Merkel by altering his country’s draft budget to push through extra deficit-reduction measures.
“Yes, more or less,” Renzi told reporters at the end of the meeting, when asked whether a possible agreement with the EU on Italy’s 2015 budget would include a cut to its planned structural deficit of as much as 0.3 percent of gross domestic product.
Having said on the way into the summit that the negotiations concerned “small discussions over decimals and commas” that wouldn’t stop Italian reforms, he left saying he was confident of a deal that would ensure the EU didn’t reject his government’s budget.
Sound Finances
France’s Francois Hollande took a similar line, saying France had “done what it has to do” to cut its structural deficit and that his goal was “to not receive another letter” from the EU Commission saying the budget was at risk of flouting targets, “because we shouldn’t.”
The EU’s budget rules “must be adapted” to support growth, Hollande said. As a group, EU leaders officially reiterated that “structural reforms and sound public finances” are “key conditions for investment,” according to their summit communique.
Countries in the euro bloc are obliged to bring their deficits to within 3 percent of gross domestic product and reduce debt to below 60 percent of GDP.
France and Italy have been pushing for a more flexible approach to take into account growth that’s bleaker than previously forecast, which they say makes the task of meeting the EU’s deadlines more difficult.
bloomberg.com
At the end of a two-day European Union summit in Brussels, Merkel echoed comments made by European Central Bank President Mario Draghi in August that countries needed to match the ECB’s loosened monetary policy by themselves taking action to boost domestic demand.
“I’m very grateful to Mario Draghi that he held up the mirror to our eyes,” Merkel told reporters. “If fiscal policy doesn’t react at the same time” as monetary policy, “if our economic measures don’t improve, if our competitiveness doesn’t improve, if our investment policy doesn’t improve -- then we won’t get out of an unsatisfactory situation.”
Merkel’s shift in tone -- two months after Draghi’s speech in Jackson Hole, Wyoming -- may begin to draw a line under a long-running dispute at the heart of the euro area about how to avoid looming economic stagnation.
The German chancellor has previously rejected French and Italian requests for easier treatment as they try to hit EU spending targets, saying that they had to stick to previously agreed deadlines to prevent a re-emergence of the region’s debt turmoil.
Budget Compromise
The EU Commission is halfway through a two-week examination of euro-area governments’ 2015 spending plans and this week raised concerns about the draft budgets of France and Italy as well as Malta and Austria according to those countries’ governments.
Italian Prime Minister Matteo Renzi signaled that he was now prepared to compromise with Merkel by altering his country’s draft budget to push through extra deficit-reduction measures.
“Yes, more or less,” Renzi told reporters at the end of the meeting, when asked whether a possible agreement with the EU on Italy’s 2015 budget would include a cut to its planned structural deficit of as much as 0.3 percent of gross domestic product.
Having said on the way into the summit that the negotiations concerned “small discussions over decimals and commas” that wouldn’t stop Italian reforms, he left saying he was confident of a deal that would ensure the EU didn’t reject his government’s budget.
Sound Finances
France’s Francois Hollande took a similar line, saying France had “done what it has to do” to cut its structural deficit and that his goal was “to not receive another letter” from the EU Commission saying the budget was at risk of flouting targets, “because we shouldn’t.”
The EU’s budget rules “must be adapted” to support growth, Hollande said. As a group, EU leaders officially reiterated that “structural reforms and sound public finances” are “key conditions for investment,” according to their summit communique.
Countries in the euro bloc are obliged to bring their deficits to within 3 percent of gross domestic product and reduce debt to below 60 percent of GDP.
France and Italy have been pushing for a more flexible approach to take into account growth that’s bleaker than previously forecast, which they say makes the task of meeting the EU’s deadlines more difficult.
bloomberg.com
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