Duisenberg warns Germany, France over budget deficits

EUROPEAN Central Bank President Wim Duisenberg said Germany and France are putting economic growth and jobs at risk by flouting budget-deficit limits designed to boost confidence in the euro.

With growth in the 12-nation euro economy sliding toward a 10-year low, Duisenberg used his farewell appearance in the European Parliament to blame governments for hobbling Europe’s competitiveness with high deficits and regulations.

Declaring himself “satisfied’ with the ECB’s handling of the economy, Duisenberg, who retires on November 1, told a parliament committee in Brussels that in “fiscal policy, we have seen a process where commitments have repeatedly been broken” and said soaring US deficits set a bad example for Europe.

Duisenberg leaves his successor, Bank of France governor Jean-Claude Trichet, the task of pushing governments to clean up their public finances and of fending off pressure for interest-rate cuts whenever the economy slows. Trichet makes his debut speech to the same committee tomorrow at 9.30am.

Germany and France are cutting taxes to spur growth, pushing deficits over the limit of 3% of gross domestic product for the second year in 2003. France and Germany both contracted in the second quarter. To be sure, the slowdown and widening deficits haven’t depressed the euro’s exchange rate. The currency reached a record high of $1.1933 in May and now buys $1.1190.

The European Commission yesterday cut its 2003 growth forecast in half to 0.5%, which would be the worst showing since 1993.

The economy contracted in the April-to-June period for only the second time since the euro’s birth in 1999.

Europe has lagged US economic growth for nine of the past 10 years because of the “lack of political will of our leaders, our governments, also trade unions and employers to push through with changes which are so badly needed,” said Duisenberg.