German ex-chancellor Schroeder urges more time for EU reforms

BERLIN, June 20 Fri Jun 20, 2014 3:20am EDT

BERLIN, June 20 (Reuters) - Former German Chancellor Gerhard Schroeder has warned indebted southern European states must be given more time to fix their budgets, otherwise voters will turn to extremes on the political right and left, endangering the entire European project.

Schroeder, who governed in a centre-left coalition from 1998-2005, threw his weight behind fellow Social Democrat Sigmar Gabriel, the economy minister, and his call this week for more flexibility from Brussels on budget consolidation. Schroeder said it was in Germany's interests to grant more time.

EU policymakers said while meeting in Luxembourg on Thursday that Brussels could be flexible but it must have proof that reform efforts are taking place.

Finance ministers agreed there was no need to change the EU Stability and Growth Pact, which limits budget deficits to 3 percent of gross domestic and public debt to 60 percent of GDP.

In an opinion piece published in Handelsblatt newspaper on Friday, Schroeder reminded readers Germany had undergone painful reforms during his tenure and was now feeling the benefits.

"We know from our own experience in Germany that it takes years for reforms to work. This time has to be bridged - with growth programmes and schemes to fight youth unemployment," he wrote. "States need room financially for this, which they should get under the condition that they really will reform."

Existing EU rules allow for slower budget consolidation if a country makes investments or undertakes structural reforms. But policymakers worry that more time for deficit cuts may not bring about the desired effects because reforms are postponed.

Their concerns were sparked by France, which was given more time to meet its targets but has fallen short of expectations in terms of reforms.

Germany under Angela Merkel has been an ardent defender of budget austerity, making Gabriel's remarks particularly striking. The coalition government of her conservatives and the SPD has since stressed that Gabriel was not implying that the rules needed to be changed. (Reporting by Alexandra Hudson; Editing by Stephen Brown)

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