GERMAN FINANCE minister Wolfgang Schäuble wants to stabilise the single currency and force euro zone capitals to reduce fresh borrowing through new “debt brake” legislation.
A so-called debt brake became law in Germany last year, setting a new borrowing limit of 0.35 percent of gross domestic product (GDP) from 2016.
Formulated as a way to restore fiscal order after multi-billion stimulus packages, Mr Schäuble is readying a European variety of the concept as a way of rescuing the stability pact. He is expected to present details at a working group of euro zone countries meeting in Berlin on Friday.
“We need to reduce deficits in a stability pact and we have to talk about how to improve growth,” said Mr Schäuble yesterday in Brussels. “But what’s key is how to achieve a reduction of debt – the cause of all this – as something that everyone manages for themselves and everyone manages to do together.”
His Berlin spokesman said that, in the German view, the existing stability pact limiting new borrowing to 3 per cent of the GDP had proven of “insufficient” use in the current euro zone crisis.
A debt brake is one of 12 points in a policy paper being developed at the federal finance ministry in Berlin. Other proposals include greater supervision of member state economic policy and the creation of a special group to tackle future euro zone crises.
Chancellor Angela Merkel has backed the plan in general but has refused to comment on it in detail. It was unclear last night how such a “debt brake” would be applied in other euro zone countries
Austrian finance minister Josef Pröll backed the move, telling Germany’s Die Welt that it would “cap new debt, lead to stricter budgetary discipline and finally to balanced budgets in Europe.
“Behind this is our belief that we cannot have a repeat of the Greece crisis. We think the Stability and Growth Pact [on fiscal standards] has been insufficient,” spokesman Michael Offer told a regular news conference.
“Firstly, we want to prevent budget crises, we want better supervision of economic policy and thirdly the introduction of a group to fight euro zone crises,” said Mr Offer, declining to give details on individual proposals.
It is unclear how much backing such a plan would have in other European capitals. It received support from outside the euro zone yesterday when Sweden’s finance minister Anders Borg said EU countries must scale back soaring deficits faster than currently targeted to soothe markets jarred by the euro zone debt crisis.
“We must establish a more ambitious goal than 3 per cent and we must reach it faster than we have previously said,” Mr Borg told journalists.
Ms Merkel’s conservatives want the Bundestag, the lower house of parliament, to approve on Friday Berlin’s part in the €750 billion euro rescue package, which includes 123 billion euro of German loan guarantees.
That vote would come just two weeks after parliament passed a €23 billion euro bailout package for Greece. – (Additional reporting Reuters)
