June 25, 2014 / 10:46 AM / 5 years ago

Merkel signals leeway on EU budget rules, insists on Juncker

BERLIN (Reuters) - Germany’s Angela Merkel signalled her readiness on Wednesday to give EU states more flexibility within current budget rules to promote growth and job creation, but made clear she will push her choice of European Commission chief over British objections.

German Chancellor Angela Merkel speaks during a general debate in the lower house of parliament, the Bundestag, in Berlin, June 25, 2014. REUTERS/Thomas Peter

The chancellor appeared to come down clearly on the side of a more lenient interpretation of the European Union’s Stability and Growth Pact to help countries like Italy and France balance the push for reform with the need to reduce high unemployment.

“The German government agrees that the Stability and Growth Pact offers excellent conditions for that, with clear guard rails and limits on the one hand and a lot of instruments allowing flexibility on the other,” she told German parliament.

“We must use both just as they have been used in the past,” Merkel said in the Bundestag one day ahead of an EU summit.

Italian Prime Minister Matteo Renzi is leading calls for a change of course in EU policy to promote public investment, cut record joblessness and help economies brought to their knees by the euro zone debt crisis.

Germany came through the crisis unscathed with record high employment rates, Merkel told the Bundestag. Her Social Democrat coalition partners have joined France and Italy in calling for flexibility but share her reluctance to rewrite the rulebook.

Others in Germany, including the Bundesbank, warn of the dangers of the EU dropping its guard on rules that limit budget deficits to 3 percent of gross domestic product and impose a strict timetable for states to reduce their public debt.

The head of Germany’s influential BGA exporters’ association Anton Boerner said easing the rules would remove the incentive for states to implement reforms and improve their productivity.

Tinkering with the Stability and Growth Pact was “absolutely the wrong path and completely counter-productive”, Boerner told foreign correspondents in Berlin.

“Italy and France are suffering from the fact that they are not competitive. They must regain this, must make reforms, but they are not prepared to do this... They talk a lot about reforms but have delivered nothing,” he said.

Merkel’s acceptance of the need for leeway in exchange for concrete reform plans may head off one clash at this week’s EU summit, but there will still be heated debate about whether Jean-Claude Juncker should head the EU’s executive body.

The former Luxembourg premier was the lead candidate for the victorious centre-right in May’s European Parliament elections but British Prime Minister David Cameron objects to him and to letting the EU assembly sway the choice of Commission president.

Arguing that Juncker is too federalist and insufficiently committed to reforming the EU, Cameron wants to force an unprecedented summit vote on the appointment.

Merkel said it would be “no drama” if Juncker were approved by only a qualified majority of leaders.

Additional reporting by Alexandra Hudson and Michelle Martin; Editing by Paul Taylor

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