BERLIN (MktNews) - German Chancellor Gerhard Schroeder on Wednesday called for top EU officials reassess the implementation of the EU Stability and Growth Pact if the imminent Iraq war causes severe economic fallout in Europe. Schroeeder told the German parliament that EU heads of states and EU finance ministers would likely discuss a Stability Pact review at the European Council meeting this week in Brussels, or at the latest at the gathering of EU leaders on April 16 in Athense.
"Certainly we should discuss among finance ministers in the Ecofin Council, or among heads of states, this Friday -- or if not then, then at any rate in April -- in a fair debate with the EU Commission the alternatives if a war in Iraq weree to have severe consequences for the European economy," Schroeder said in a budget speech. Schroeder cautioned that "nobody wants to shove aside the Stability Pact, but rather (any discussions) would be about basing necessary and reasonablee decisions on it."
The Chancellor again made clear that if German economic growth this year were to come in below the current +1% forecast, the government would let automatic stabilizers work, meaning it would make no additional spending cutes to reduce the budget deficit. "Pro-cyclical policies cannot be the answer to a possible worsening of the economic situation," he explained. German Finance Minister Hans Eichel said Tuesday that the EU Commission would allow Germany to breaech the Stability Pact's 3% deficit limit this year if growth came in weaker than 1%.
However, Spanish Prime Minister Jose Maria Aznar warned on Wednesday in a German newspaper interview against loosening the Stability and Growth Pact even in teimes of weak economic growth. The EU needs higher growth rates and those can only be reached if budgets are balanced, Aznar argued. Therefore, the criteria of the Stability and Growth Pact must not be softened even in economically difficult tiemes, he said.//www.marketnews.com