Posted on 09/12/2003 5:51:02 AM PDT by kattracks
STRESA, Italy, Sep 12, 2003 (AP Online via COMTEX) -- France and Germany faced mounting pressure Friday to cut their budget deficits as their smaller euro-zone partners feared the big two's expanding debt risks destabilizing the currency bloc."We cannot have divisions whereby some obey the rules and others don't, because in the end we'll all have to pay a price for that," said Austrian Finance Minister Karl-Heinz Grasser.
The worsening dispute over deficits and more gloomy data on the European economy were expected to dominate two days of talks among European Union finance ministers opening in this picturesque lakeside resort.
Ministers were expected to talk up the chances of recovery Friday even as the bloc's biggest economies slump into recession.
"We can expect ... some positive signals with several indicators showing there is a recovery in sight," Grasser told reporters.
Host nation Italy became the latest euro-zone member to officially enter into recession this week, with the news that its economy contracted by 0.1 percent for the second successive quarter.
Germany has already sunk into recession and is in its third year of near-zero growth. The French economy is also teetering on the brink of recession after it shrank in the last quarter.
Both nations have responded to the stagnation by running up budget deficits well beyond the limits set by European Union rules, provoking anger from smaller nations that have already put their budgets in order.
At the heart of the dispute is a "stability pact" adopted in the run-up to the euro's 1999 launch to ensure sloppy public finances did not undermine the credibility of the new currency. Those rules limit budget deficits to 3 percent of gross domestic product, and threaten billions of dollars in fines if government borrowing exceeds that limit.
France and Germany are set to run deficits close to 4 percent of GDP this year after the already breaking the threshold in 2002.
The French budget for 2004 due for release later this month is unlikely to reverse the trend as Paris insists tax cuts and spending to stimulate the economy take priority over trying to balance the books.
"France has never contested the need for game rules and for a stability pact," President Jacques Chirac said Thursday during a visit to Spain. "But one might ask if the pact takes into account the demands of the economy."
Fearful of a damaging confrontation if the EU tries to impose fines on its most powerful members, officials are looking for loopholes that would let France and Germany off the hook.
Sensing a cave-in, small nations are rebelling. Dutch Finance Minister Gerrit Zalm is reportedly threatening legal action at the EU's high court if action is not taken against countries that persistently break the rules.
"If you have permanent violations of the rules, you need sanctions," said Austria's Grasser. "If not, the rules are worthless."
Looking beyond the bad economic news, the EU's head office said signs from across the Atlantic could point to brighter times ahead.
"The U.S. economy should lead the global recovery with a gradual pickup in the rest of the world expected for the second half of 2003," the European Commission said in a paper released ahead of the meeting.
"Growth is expected to gather pace further in 2004," the Commission added. It predicted the euro-zone economy will expand this year, but only by 0.5 percent.
On Saturday, ministers from the EU's three non-euro zone nations, Britain, Denmark and Sweden will join the talks.
By PAUL AMES Associated Press Writer
It was those damn Bush tax cuts.
From the very outset, it was foolish for other Eurinals to even think that France would EVER act in other than her own self-interest.
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