European Commission: Germany must invest more, France spend less

Jyrki Katainen [EPP/Flickr]

Germany’s potential for growth is far too low, and the country must invest more, Jyrki Katainen said on Friday. France is cutting its deficit less quickly than promised, raising the chances that the Commission will reject its 2015 budget.

Germany is looking increasingly isolated on its prescription for an economic revival with its focus on balancing the books and avoiding new debt, while France, Italy, the United States and the IMF want to see Berlin agree to more public spending.

“What we have heard from Germany is that their potential growth is currently 1.5 (percent), or something like that. This is far too low. This is really an issue. We need investment, also in Germany,” said Jyrki Katainen, who will take over as the European Commission’s Vice-President for Jobs, Growth, Investment and Competitiveness on 1 November.

After the eurozone’s revival came to a halt in the second quarter, the currency area has sought to shift course away from the spending cuts that marked the bloc’s initial response to 2009-2012 crisis, but Germany says budget rigour must continue.

>> Read: EU in last-ditch talks with Italy and France on 2015 budget changes

The European Commission, which acts as a budget policeman for the 18 country eurozone, is reviewing member states’ draft budget plans to see if they are in line with EU budget rules.

The rules oblige governments to strive every year towards balancing their books and avoid any repeat of the 2009-2012 eurozone crisis, where countries spent well beyond their means.

On Italy’s 2015 budget plans, Katainen, who is currently the EU’s Economic and Monetary Affairs Commissioner, said he needed more information from Rome. “We expect some response and let’s see it,” he told reporters.

The European Commission has asked Italy to explain why its draft budget for next year will breach debt-reduction goals it promised the European Union, a step that may lead to demands from Brussels for changes to the budget package.

France can do more to rein in spending – central bank chief

France is cutting its public deficit less quickly than promised to its EU partners, raising the chances that the European Commission will reject its 2015 budget and ask for amendments.

President Francois Hollande said early Friday in Brussels that the Commission had asked for more information on the budget but ruled out making bigger savings than the unprecedented 21 billion euros already planned.

Hollande’s Socialist government is wary of trying to squeeze more savings out of the budget on the grounds that tougher belt-tightening could undermine a fragile economic recovery.

>> Read: Socialists to hold major summit on economy in December

“We could without doubt get more savings out of our spending, but I would like to see that first we do the 21 billion that have been announced. That seems the most important to me,” Bank of France governor Christian Noyer said RTL radio.

“It’s true we have to find the right balance between necessary improvement in public finances, which must be regular and credible, while not snuffing out economic activity,” Noyer said.

Noyer said that France and Italy were not seeing stronger growth because they had fallen behind on economic reforms, while even stronger Germany needed to do more to boost demand, in particular by stepping up investment.

“We can’t expect everything to come from Germany, we have to do our reforms,” Noyer said.

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