Issing says be tough on deficits
BERLIN (Reuters) – European Central Bank Chief Economist Otmar Issing was quoted on Friday urging European Union governments to strictly apply the bloc’s reformed rules on budget deficits in the cases of Germany, France and Greece. «The deficit procedures in the three cases of Germany, France and Greece are the litmus test for the reformed (Stability and Growth) Pact,» Issing told the Boersen Zeitung newspaper in an interview, according to excerpts released in advance of publication on Saturday. The EU’s executive is due in January to relaunch disciplinary proceedings against Germany for breaking the EU’s 3 percent of gross domestic product (GDP) limit on budget deficits for four years in a row. Germany is also expected to exceed the limit in 2005, but Brussels has already signaled it will give the country until the end of 2007 to comply. It has not, however, specified under what conditions. Issing told Boersen Zeitung, «Any breaches of the spirit of the pact should be as politically expensive as possible.» German Finance Minister Peer Steinbruck has urged the European Commission to leave the disciplinary process against Germany in first gear. Any step up in the procedure would leave Berlin with little wriggle room to avoid financial sanctions should it again fail to comply with the deficit limit in 2007. Greece has been given until the end of 2006 to comply with the 3 percent limit, after revisions to past budget data showed it exceeded the deficit limit even when admitted into the single currency. Issing also told Boersen Zeitung that the European Central Bank could act at any time if it saw risks to price stability. «The rate hike (on December 1) should not be seen as a move which others would follow automatically,» Issing told the newspaper. «We will of course act at any time we see risks to price stability.» The ECB raised interest rates on December 1 for the first time in five years, taking its benchmark refinancing rate up to 2.25 percent, from an historic low of 2 percent.
