Germany on Tuesday completed its conversion back to budget orthodoxy after its partners in the European Union absolved Berlin of flouting EU overspending rules in the past. EU finance ministers, meeting in Luxembourg, dropped disciplinary action against Germany for failing to respect deficit rules, closing a dark chapter for Europe's economic heavyweight.
"We say with a certain pride that we have been released from the deficit procedure," German Finance Minister Peer Steinbrueck told journalists on the sidelines of the meeting.
"We will oblige ourselves to ensure by 2010 that we will have achieved an overall balanced budget," he said. "I never ever want to have such a deficit procedure again." Long Europe's leading disciple of fiscal discipline, Germany fell from grace during a prolonged economic slump at the beginning of the decade that crimped tax revenues and caused the deficit to swell.
Thanks to a revival in its economic and therefore fiscal fortunes, Germany has once again become a leading disciple of spending discipline, cutting its deficit last year in line with EU rules - well ahead of an end of 2007 deadline.
Berlin slashed its 2006 deficit to 1.9 percent of gross domestic product, which allowed it to meet for the first time in four years rules enshrined in the EU's Stability and Growth Pact, requiring the deficit to be less than three percent of output.
Welcoming Germany's return to budget discipline, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said he "will continue to monitor" German public finances, especially as a corporate tax reform goes into effect next year. "I hope that Minister Steinbrueck and the federal government will have success in (their fiscal) consolidation process and that this consolidation process will help the success of the Germany economy," he said.
The ministers also gave a reprieve to Malta, which is on its way to adopting the euro next January, and Greece after the two Mediterranean countries brought their deficits in line with the EU limit. However, Germany's return to fiscal orthodoxy is all the more important because it was the main author behind the 1997 stability pact and was also, along with France, the driving force behind its revision when the duo failed to meet the deficit limit.
Despite stirring up an unholy bust-up with smaller standard-bearers of fiscal discipline, Germany and France eventually succeeded in winning over their EU partners to rewriting the pact in 2005 to give more leeway to run up deficits during weak growth.
France, which was in the same dilemma as Germany, was absolved of its overspending sins in January by other EU countries after Paris met the sacrosanct three-percent limit in 2005. However, France's return to the ranks of the fiscally prudent is once again in question after the new government promised to jolt the economy into faster growth with tax cuts.
French Finance Minister Jean-Louis Borloo spoke in terms of creating a "shock of confidence" in France as he arrived for his debut among his eurozone counterparts at a meeting in Luxembourg. After coming to power in May, France's new government was quick to call a "pause" in the deficit's downward trend in order to carry out the package of tax cuts.
After chairing the meeting of eurozone finance ministers, Luxembourg Prime and Finance Minister Jean-Claude Juncker said Borloo left him with no doubt that France would respect EU deficit rules. "I do not doubt for one moment that France will satisfy the requirements of the stability pact," Juncker said, adding that the ministers would take a closer look at the French budget plans in July after parliamentary elections later this month.
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