June 26, 2014 / 8:51 AM / 4 years ago

UPDATE 1-Germany's SPD doesn't question EU budget rules - econ minister

(Adds Gabriel quotes, background)

BERLIN, June 26 (Reuters) - German Economy Minister Sigmar Gabriel said on Thursday neither he nor anybody in his centre-left party questioned the European Union’s budget rules, having prompted a discussion over the need to soften the Stability and Growth Pact with comments last week.

“Nobody, even in the SPD, wants to meddle with the Stability and Growth Pact,” Gabriel, leader of the Social Democrats, told parliament.

Last week, Gabriel - who is deputy chancellor in Angela Merkel’s coalition government - said in France he was open to debate on giving EU countries more time to meet the bloc’s deficit targets if they committed to reforms.

The government has since been quick to clarify that Gabriel was not calling for changes to the pact but was pointing to the flexibility available within the existing rules.

Governments across the EU, including Merkel‘s, have now acknowledged that fiscal rules should be applied flexibly to promote growth, a compromise that has become part of a grander bargain over who will become the next European Commission chief.

EU heads of state and government meet in Brussels on Thursday and Friday and will likely decide whether to propose Jean-Claude Juncker as the next head of the Commission, a choice opposed strongly by Britain.

Italian is likely not to oppose Juncker any longer following offers for a gentler interpretation of EU budget rules.

The existing 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 if it means postponing reforms.

Their concerns were sparked by France, which in exchange for reform promises was given two extra years until the end of 2015 to bring its budget deficit below 3 percent of GDP.

The reforms did not go as far as expected and France will struggle to meet even the extended deadline.

“These countries will not get over their structural crisis without structural reforms. If you keep avoiding them, in the end you won’t succeed,” said Gabriel.

“I think Germany is the best example of this,” he said, recalling the “Agenda 2010” economic reforms launched by an SPD-led government a decade ago which are credited with cutting Germany’s labour costs and making its economy more competitive.

Gabriel added that “the big difference between Germany and France” was that, while both broke EU budget rules at the time, Germany responded with tough reforms but France did not. (Reporting by Annika Breidthardt and Stephen Brown)

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