–EU Member States Risk Exporting Deflation To Each Other
–Must Not Miss ‘Window Of Opportunity’ For Trade Round Conclusion
–Warns On Public Anger If EU Budget And UK Contribution Not Cut

LONDON – EU member states risk exporting deflation to each
other if they embark on a period of ‘collective’ fiscal consolidation,
according to UK Business Secretary Vince Cable.

Speaking at a joint event with German Economics Minister Rainer
Bruederle, Cable said that given the lack of flexibility in monetary
policy, it would be wise for member states to have differentiated
deficit reduction programs.

“It is helpful on a political level to be sharing the pain of
fiscal consolidation but economically there must be concern that EU
countries are exporting deflation to each other through collective
fiscal tightening,” he said.

“There is a case for a differentiated approach, dependent on
country circumstances, and also for recognising that there are
structural imbalances reflected in the current account, given the lack
of flexibility in monetary and fiscal policy,” he added.

Some commentators have criticised Germany in the past for not doing
enough to provide fiscal stimulus during the slowdown, given the
country’s relatively healthy public finances.

The business secretary also said that there was an important window
of opportunity for concluding the Doha trade Round in 2011, but that
doing so would require more concessions from Europe.

“We must not miss (it), but it will be difficult. To do this, we
need to make real progress ahead of the Seoul G20 summit, so that
leaders can set out at Seoul the way forward to concluding the Round,”
he said.

“At present the obstacles to progress are mainly in the US but a
successful Round will involve bigger concessions from the EU, especially
in agriculture,” he added.

Cable also called for a cut in the EU’s annual budget, stating that
there will be real public anger if it stays at its current size during
the upcoming period of fiscal retrenchment in the UK.

The EU budget will total E141.4bn in 2010.

“We believe there needs to be greater discipline on the EU budget
and we need to work together on reform. The EU budget and gross
contributions are increasing, at a time when Member States are least
able to afford it,” Cable said.

“With big spending cuts in prospect in the UK there will be real
public anger if the EU budget, and our contribution, are not cut also,”
he added.

The business secretary also called for coordinated action to boost
the EU-27’s trend growth rate, stating that the 1.7% annual growth rate
in 2014, as forecast by Eurostat would not be adequate.

“Europe urgently needs supply side reforms to improve its growth
prospects, potential growth across the EU is forecast to recover to just
1.7% by 2014,” he said.

“What specifically can we do to accelerate this process? How
realistic is it to inject new dynamism through a fresh opening up of the
EU Single Market as Mario Monti has proposed?” he added.

–London bureau: 44 20 7862 7492; email: wwilkes@marketnews.com

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