Germany says EU executive has no mandate to tell it to spend more

BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble said on Friday that the European Commission, which has effectively urged Germany to spend more in 2017, did not have the right to decide on how much fiscal room for manoeuvre EU members have.

German Finance Minister Wolfgang Schaeuble in Berlin, Germany, November 9, 2016. REUTERS/Axel Schmidt

“We are bound by European law and so is the Commission. The Stability Pact says that budgets are reviewed by the member states. The Commission has instead reviewed fiscal space for the euro zone and it has no mandate for that,” Schaeuble said at an event in Berlin organised by the Sueddeutsche Zeitung newspaper.

The European Commission on Wednesday called for the 19-country euro zone, in which Germany is the largest economy, to loosen overall budget policy next year.

The Commission did not explicitly name Germany, where Chancellor Angela Merkel’s conservatives face an election next autumn complicated by the emergence of the fiscally hawkish, eurosceptic AfD, in its recommendation for the whole euro zone.

But because France, Italy and Spain are among those butting up against the currency union’s budget deficit limits, only Berlin has the scope and economic weight to make a difference.

Schaeuble said it was necessary to stick to Europe’s Stability and Growth Pact to protect the euro currency in a swipe at the Commission which is seen by many northern European countries as not policing budget discipline strongly enough.

Under EU rules, each euro zone country should seek to diminish its structural budget deficit until it reaches its so-called medium term objective.

For various countries this goal, which excludes one-off expenses and revenues and the effects of the business cycle, ranges from a structural deficit of 0.5 percent of GDP to a surplus. For Germany it is a 0.5 percent structural deficit.

Starting from 2012, Germany has been exceeding that goal and has even had surpluses from 2013. The Commission has been recommending therefore that Berlin spend more domestically to make its export-driven economy less dependent on external demand.

“We are not asking all Member States to spend more, and those that should do more to deliver the appropriate fiscal stance for the euro area as a whole should not be surprised,” Commission spokeswoman Annika Breidthardt said.

“Our communication reflects what our recommendations have said for a long time,” she said.

Additional reporting by Jan Strupczewski; Reporting by Michelle Martin and Joseph Nasr; Editing by Paul Carrel