Bundesbank: German Tax Plans "Inappropriate", Break EU Pact
FRANKFURT -(Dow Jones)- The Deutsche Bundesbank Thursday attacked the new
government's plans for unfunded tax cuts, calling them economically
inappropriate and contrary to European rules on budget discipline.
"Unfunded spending increases and tax cuts in 2010 are a problematic signal,"
the Bundesbank said in its monthly report for November. "They draw out and make
more difficult the necessary process of consolidation, and the observance of
international obligations and national rules."
"Moreover, they are not appropriate from an economic perspective, as
substantial parts of economic stimulus packages already enacted will have their
effect in the course of 2010," it added.
The new center-right coalition under Chancellor Angela Merkel plans EUR19
billion in tax cuts from 2011, along with other handouts worth EUR4.5 billion
next year. The measures appear to go against the grain of an agreement among
euro-zone finance ministers to start tightening fiscal policy in 2011.
Germany and 12 of the other 15 countries that use the euro are all expected to
run budget deficits in excess of 3% of gross domestic product next year,
violating the Stability and Growth Pact that aims to ensure that the euro isn't
undermined by irresponsible fiscal policy.
The pact was de facto suspended in the wake of the 2008 financial crisis, as
governments pumped up spending to save their countries' banking systems and cope
with the costs of the ensuing recession.
Bundesbank expects this year's German deficit to be just over 3% of GDP,
rising to around 5% of GDP next year.
German Finance Minister Wolfgang Schaeuble told his EU counterparts last week
that he couldn't bring the deficit back below 3% of GDP before 2013.
However, the Bundesbank contradicted that assessment Thursday, saying: "in
view of the improved outlook for public finances, it would be quite possible to
reach the 3% limit by 2012."
Failure to do so, it said, contrasts with Germany's "special responsibility"
as regards European fiscal discipline. It was at Germany's insistence that the
Stability and Growth Pact was inserted into the EU's Maastricht Treaty as a
supplement to the provisions on monetary union.
Web site: http://www.bundesbank.de
-By Geoffrey T. Smith, Dow Jones Newswires; (+49 69) 29725-520;
geoffrey.smith@dowjones.com
(END) Dow Jones Newswires
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