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EUROPE

Germany: Europe’s fiscal deal ‘still stands’

German Foreign Minister Guido Westerwelle on Friday warned that new elections did not invalidate European Union's deal on tighter fiscal policy.

Germany: Europe's fiscal deal 'still stands'
Dirk Vorderstraße

“The fiscal pact is decided. It stands,” he said. “Agreements between states do not become invalid with new elections,” he told lawmakers in the Bundestag lower house of parliament.

Westerwelle’s comments came after calls by France’s president-elect François Hollande to add growth-stimulating measures to the accord.

Hollande is facing resistance to his plan to reopen talks on the EU’s hard-won fiscal austerity pact in order to refocus the EU’s economic policy on growth.

He will travel to Berlin Tuesday, just hours after his inauguration, to meet Chancellor Angela Merkel who has championed a policy of austerity to beat the eurozone debt crisis.

Since Hollande’s election victory last Sunday, Merkel who faces a major regional election in Germany herself Sunday, has talked tough on the need for both debt-reduction and growth.

“Growth cannot be bought with debt. Competitiveness is the key to more growth. And competitiveness is achieved through structural reforms,” Westerwelle said.

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EUROPE

Brussels warns Italy to rein in public spending amid pandemic

Most EU member states should continue to invest to support the continent's economic recovery, but heavily-indebted Italy should rein in public spending, the European Commission warned on Wednesday.

Italian Prime Minister Mario Draghi
Italian Prime Minister Mario Draghi expects the country's GDP to recover in the coming year. Photo: Alessandra Tarantino / POOL / AFP

“The economy is bouncing back from the recession, driven by a rebound in demand across Europe,” EU executive vice-president Valdis Dombrovskis said.

“But we are not out of the woods yet. The economic outlook remains riddled with uncertainty,” he said, warning that the coronavirus is still spreading, prices are rising and supply chains face disruption.

Despite these unpredictable threats, European officials predict a strong recovery, and want eurozone governments to maintain their “moderately supportive fiscal stance” to support investment.

EXPLAINED: How Italy’s proposed new budget could affect you

Italy, however, remains a worry. Its public debt passed 155 percent of its GDP last year, and Brussels is worried that it is still budgeting to spend too much next year.

“In order to contribute to the pursuit of a prudent fiscal policy, the Commission invites Italy to take the necessary measures within the national budgetary process to limit the growth of nationally financed current expenditure,” the commission report said.

The commission did not say by how much Italy’s spending plans should be reduced, and its recommendation is not binding on the government.

The European Union suspended its fiscal discipline rules last year, allowing eurozone members to boost their public spending to help their economies survive the Covid-19 pandemic.

But the European commissioner for the economy, former Italian prime minister Paolo Gentiloni, said governments should now “gradually pivot fiscal measures towards investments”.

“Policies should be differentiated across the euro area to take into account the state of the recovery and fiscal sustainability,” he said.

“Reducing debt in a growth-friendly manner is not necessarily an oxymoron.”

Italian Prime Minister Mario Draghi, a former European Central Bank chief, has said Italy’s economy is recovering after the pandemic-induced recession.

Draghi forecast economic growth this year of “probably well over six percent” in a statement on October 28th.

Italy’s GDP rate grew by 2.6% in the third quarter of 2021.

While economists don’t expect Italian GDP to bounce back to pre-pandemic levels until 2022, ratings agency Standard & Poor has revised its outlook for Italian debt from stable to positive.

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