FRANKFURT (MNI) – Germany and other Eurozone states should cut
their government deficits more quickly, the Bundesbank argued Friday.
Thanks to structural improvements and the economic recovery,
Germany could narrow its federal budget gap to around E30 billion this
year, which would bring the public deficit below 2% of GDP, the central
bank estimated in its monthly bulletin. It noted that this would reduce
the public debt ratio from last year’s record high of 83.2%.
Next year, the ratio of public revenues to GDP should stabilize,
while expenditures should decline further as the last of the stimulus
investment program expires, the Bundesbank projected.
However, the solid domestic economic upswing must not be used as an
excuse to relax consolidation efforts, the bank warned: “Given the
alarmingly high public debt, targets must be met.”
The stricter ceilings on federal and state deficits, as well as the
aging of the population, argue for precautionary budget cushions in case
of unexpected economic downturns or shocks, it added. “Thus, it is
highly recommended to make use of the ‘good times’ to reduce deficits
faster.”
Moreover, last year’s deficit targets are now outdated and create
tempting budget leeway, the Bundesbank argued, urging that the balanced
budget requirement for 2016 be brought forward.
The budget situation of many other Eurozone governments is much
more critical, the central bank acknowledged. “The latest forecasts of
the European Commission highlight the danger that many countries could
overshoot the EU consolidation targets,” which shows the need for more
ambitious efforts, it said.
Except for Estonia and Luxembourg, all EMU governments are running
excessive public deficits, it noted.
Greece in particular, with a shortfall of 10.5% last year, must
meet its deficit targets this year, it insisted. “Bending the rules
would raise even more doubts about Greece’s solvency and about the
credibility of future European accords.”
The admittedly great sacrifices Greece must make “are unavoidable
if sustainable public finances are to be restored, and they are a
precondition for financial support, without which the adjustment would
be much tougher,” the Bundesbank said.
In order to enhance the credibility of some EMU governments, there
must be incentives for them to solve their financial problems on their
own and not shift the burden onto others, the Bundesbank declared,
pointing a finger at the recent reduction in borrowing rates for Athens.
Turning to Portugal, the central bank noted that the deficit
targets set last year have been relaxed in the wake of the upward
revision to the 2010 budget gap. “In light of the precarious public
budget situation, the structural negligence of the past and the
preconditions for financial support, the targets must absolutely be met
with precision,” the central bank said.
In the case of Ireland, the Bundesbank warned that the sluggish
economy and the risk of further financial burdens from the banking
sector could jeopardize the goal of reducing the public deficit to 3% by
2015.
[TOPICS: M$G$$$,M$X$$$,MFGBU$,M$$EC$]
