France must cut deficit below 3 percent/GDP - ECB's Asmussen

BERLIN Fri Feb 15, 2013 12:35pm GMT

European Central Bank (ECB) Executive Board member Joerg Asmussen smiles during an interview with Reuters in Berlin June 19, 2012. REUTERS/Pawel Kopczynski

European Central Bank (ECB) Executive Board member Joerg Asmussen smiles during an interview with Reuters in Berlin June 19, 2012.

Credit: Reuters/Pawel Kopczynski

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BERLIN (Reuters) - The senior German policymaker at the European Central Bank urged France on Friday to cut its public deficit below the EU ceiling, highlighting a problem that threatens a policy rift between the euro zone's top economies.

French Prime Minister Jean-Marc Ayrault said on Wednesday an economic slowdown meant France would fail to cut its public deficit from 4.5 percent of output in 2012 to the official EU ceiling of 3 percent in 2013.

Joerg Asmussen, who sits on the ECB Executive Board and is a former deputy finance minister in the administration of Chancellor Angela Merkel, said that Germany and France needed to set an example to other European states.

They had special responsibility for the stability upholding the European Union's stability and growth pact, and "I personally think it is very important that France keeps its deficit below 3 percent this year," he told Germany's Deutschlandfunk radio.

German finance ministry spokesman Johannes Blankenheim said European treaties needed to be fulfilled: "Clearly from our point of view the consolidation strategy being pursued in member states must continue to be implemented successfully and consistently and all of the necessary measures for this must be taken," he said at a regular government news conference.

Berlin has been a tireless advocate of fiscal discipline among euro zone states, while divisions between the two capitals have also emerged over currency policy.

Germany rejected French President Francois Hollande's call to set a mid-term target for the euro, which earlier this month hit a 15-month high against the dollar before easing slightly.

On Friday, before a meeting of Group of 20 financial leaders in Moscow, Asmussen joined ECB President Mario Draghi and fellow German governing council member Jens Weidmann in pushing back against political pressure to target the euro's exchange rate.

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On Thursday Olli Rehn, the EU's top economic official told finance ministers euro zone countries could have extra time to meet deficit-cutting goals if the growth outlook deteriorated.

The French economy contracted by a worse-than-expected 0.3 percent in the final three months of 2012, edging closer to recession, while the euro zone as a whole shrank by 0.6 percent.

Asmussen said a country's economic situation needed to be taken into account. But while the stability and fiscal pact stipulated a country could have more time to meet its deficit goals if its economy unexpectedly and significantly deteriorated, it also required the country to prove it had taken effective measures to cut its deficit.

Asmussen said he could not say whether France would be allowed more time under EU budget rules until new growth figures for the euro zone's second biggest economy were released next week.

Asked if states were likely to ask the ECB to buy their bonds given weak growth, Asmussen said while fourth-quarter growth figures for the euro zone were not good, there were signs this quarter that the economy was picking up.

Asmussen also said the ECB wanted currency exchange rates to remain market-orientated.

"In the last couple of days the Group of Seven biggest industrial nations made clear once again that currency exchange rates should be market-based and that we have no exchange rate targets and that's true for us at the ECB too," he said.

(Reporting by Michelle Martin; Editing by John Stonestreet and Ruth Pitchford)

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