BERLIN (MNI) – German Chancellor Angela Merkel said Thursday her
government will refrain from further fiscal tightening in order to avoid
dampening domestic demand.

The decision should help fellow Eurozone states via stronger German
imports, Merkel said.

Germany has been criticized repeatedly by the International
Monetary Fund and other European governments for its large trade
surplus.

Speaking at a joint press conference with Hungarian Prime Minister
Viktor Orban here, Merkel noted that Germany had brought its public
deficit way below the EU threshold of 3% of GDP.

“Now it is our duty to do something for the recovery of the
European economy,” the chancellor said, noting that her government was
planning tax cuts to maintain domestic demand. She acknowledged that the
German economy will not remain unaffected by the downturn in the
Eurozone but predicted that it will likely still grow around 1% both
this year and next.

Looking ahead to the EU summit next week, Merkel reiterated her
warning against rushing into a European banking union. “Quality is more
important than speed,” she said. “We will not have gained anything if
the result is not better than what we have already.”

The European Commission aims to get a joint banking supervisor
under the helm of the European Central Bank up and running by the start
of the year. Merkel and her Finance Minister Wolfgang Schaeuble have
argued that this date is unrealistic.

Merkel refused to comment on demands by IMF Managing Director
Christine Lagarde to give Greece two more years to meet the fiscal
targets required under the terms of its bailout program. Decisions on
Greece can only be made once the next report of the troika — the
European Commission, the ECB and the IMF — is available, she said.

Orban, who is currently in negotiations with the EU and the IMF
over a precautionary credit line for his country, said he expects
Hungary to return to economic growth by next year.

Orban watered down remarks he had made in a newspaper interview on
Wednesday about rejecting the accession of his country to the Eurozone.
“Hungary has to join the Eurozone when it really offers a [good]
prospect,” he said today. “The euro has problems, but that does not mean
it will always stay this way.”

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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