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Monday, 21 January, 2002, 21:58 GMT
Budget worries at euro talks
German finance minister Hans Eichel
German finance minister Eichel is the focus of attention
European finance ministers are meeting on Tuesday and Wednesday in Brussels for the first time since the launch of euro cash at the start of this year.

But while they hope to dwell on the smooth launch of the single currency, a growing row over budget policy may overshadow the agenda.

Some observers had expected that by the end of the month the European Commission could issue warnings to Germany and Portugal about their swelling budget deficits, which come close to breaching Maastricht Treaty guidelines.

Although most EU and eurozone members are seen as fiscal disciplinarians, there is concern that slippage in Portugal, and especially Germany - Europe's biggest economy - could undermine the euro.

Germany's finance minister Hans Eichel, though, said the commission had no reason to warn his government about its budget deficit.

"We have a good budget policy, The commission thinks so also," he said on Monday evening in Brussels.

Pedro Solbes, the commissoner in charge of EU economic and monetary affairs, supported Mr Eichel, saying the commission had no plans to send a letter to Germany.

Euro focus

The meeting is in two parts: Eurozone finance ministers, the so-called Eurogroup, met on Monday evening, followed by all 15 EU finance ministers, otherwise known as Ecofin, on Tuesday.

Eurogroup's brief meeting is intended to be almost entirely concerned with looking back at the introduction of euro cash.

Ecofin, which has a little more time at its disposal, will be discussing a range of topics from research and development spending to tax on savings.

But for both groups, the stickier issue of budget policy will be on the agenda, after months of grumblings from governments around the region.

German jitters

The worrying element in the current budget debate is Germany, traditionally one of the EU's main proponents of tight fiscal policies.

Over the past couple of years, however, the slowing German economy has sent its budget into some disarray.

Last week, new data showed that the German deficit ratio shot up to 2.6% in 2001 from 1.3% the year before.

In an interview with FT Deutschland on Monday, German finance minister Hans Eichel admitted that the deficit this year might approach 3% - the maximum level allowed under the Maastricht Treaty.

Some economists have even forecast that it might breach the 3% ceiling this year.

Neighbours worry

The swelling German deficit has caused disquiet among finance ministries around the EU.

There have been persistent rumours that Germany might push for the scrapping of the Stability and Growth Pact, the agreement under which EU members keep their budgets in line.

Some fear that, with federal elections due in September this year, the German government might be tempted to bring forward the next scheduled round of tax cuts.

Accentuate the positive

The issue is unlikely to be fully explored in Brussels, however.

European finance ministers are reportedly keen to stress the positive - in other words, the introduction of the euro - at their first meeting of the Spanish EU presidency.

Ecofin and Eurogroup meetings are rarely the venue for serious business, which is generally done in more private surroundings.

And full discussion is likely to be postponed until February, after the Commission publishes its reports on the German and Portuguese budgets.

See also:

04 Dec 01 | Business
EU eyes German budget deficit
30 Nov 01 | Business
France and Germany lose jobs
21 Sep 01 | Business
German business confidence falls
22 Aug 01 | Business
Germany's feeling the pinch
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