Berlin, 20/04/2007 (Agence Europe) - Speaking in Berlin on Friday 20 April at the end of a meeting of the eurozone finance ministers, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said that this had been the first time that discussions had taken place on budget issues before member state parliaments and governments got down to the business of deciding on the national budget for the year to come. Eurogroup President Jean-Claude Juncker said he was happy to see that the budget situation in the different countries was moving in the same direction, adding that the current boom being experienced in the eurozone and the surplus income should be all be used on 'sound fiscal policies' and avoiding pro-cyclical policies, as set out in the preventative measures under the Stability and Growth Pact.
In the declaration adopted by the EU13, the countries pledged to carefully draw up budget policies for 2008 to speed up adjustment towards mid-term objectives for member states which have not reached their objectives, and for the countries that have reached them to avoid feeding macroeconomic imbalances. They also pledged to build on the better than forecast results for 2006 to pursue more ambitious budget objectives than set out in the 2006 Stability Programmes, and to use their 2007 budgets as planned, avoiding extra expenditure and using the unexpected windfalls to cut deficits and national debts. As a result, most eurozone countries are expected to meet their mid-term objectives in 2008 and 2009 and all are expected to achieve this by 2010.
Debate focussed on the situation in Germany and the Netherlands, two member states which draw up their budgets for the following year early in the year. German Finance Minister Peer Steinbruck said on Thursday that Germany was planning to bring its public deficit to 0% in 2010, describing this as a realistic and serious target. His statement is in line with the forecasts of five German economic research institutes, which even predict that Germany will be able to absorb all the deficit in 2008. Speaking on Friday after the Eurogroup meeting, Almunia said that the German economy was doing better than expected, and Steinbruck had said he wholeheartedly pledged to continue the consolidation work. Almunia added that the Germans had not yet decided on their 2008 budget but Steinbruck's position was wholly in line with the general conclusions.
Does the priority of focussing on cutting deficits mean that all windfall income should be used to this end? Juncker said it was an absolute priority. Not all income arising from structural impacts should automatically be used to the same end, he noted, however. In response to a question from an Italian reporter echoing comments by the Italian prime minister Romano Prodi that excess budget income should also be used to help companies and cut income tax, Luxembourg's prime minister (Juncker) said that the plan was not about forcing the hand of countries to reduce their debt, but debt should be the priority in member states where debt levels are particularly high, like Italy. He stressed the responsibility of member states to look after future generations against the backdrop of ageing populations. The president of the Eurogroup stressed the importance of not repeating the crass errors of 1999, 2000 and 2001 in 2007, when the member states failed to make sufficient use of the boom to cut debt levels, and the Commission had responded by issuing excess budget deficit proceedings against countries like Germany and France.
Can the Eurogroup guidelines really be relied upon with regard to future budget policy given thatsome Eurozone ministers had not been present in Berlin? Juncker said he was certain that the French government fully shared the conclusions adopted by the others in Berlin - Thierry Breton had not attended the meeting because of the presidential elections in France.
Exchange rates. The Eurogroup is not concerned at the high level of the euro (close to its highest ever level). On Friday morning, the Eurogroup president commented that the euro had not risen too over-sharply but had gradually increased, and there was therefore no need to panic. Exchange rate volatility, however, needed to be closely monitored. Jean-Claude Trichet, President of the European Central Bank (ECB), said at a press conference that over-volatility and chaotic rises in rates were undesirable for economic growth, and he thought that the upturn in the Japanese economy was sustainable and exchange rates should reflect these fundamentals (referring to recent discussions he had in Washington with the Japanese authorities at the Spring summits of the Bretton Woods institutions, see EUROPE 9407). Trichet said he noted with interest the statements by the US authorities that a strong dollar worked to the benefit of the US economy. (mb)