Bonn talks tough over budget ‘blacklist’

Date: 08/05/1997

GERMAN Finance Minister Theo Waigel is making a rod for his own back by opposing the removal of the Netherlands from the EU's 'black- list' of budgetary transgressors.

His Union colleagues are due to clear the Dutch, along with the Finns, of running up an 'excessive deficit' when they meet next Monday (12 May).

But Waigel and his officials are dragging their feet because of the Netherlands' persistently high level of public debt, which is still well above the target of 60&percent; of gross domestic product required to enter the single currency zone in January 1999 - even though Germany itself is unlikely to meet that goal this year.

Ever since the excessive deficit procedure was established three years ago, Waigel has interpreted the rules as strictly as possible. For him, deficits must amount to less than 3&percent; of GDP and public debt to less than 60&percent; of GDP if governments are to escape censure.

In 1995, Waigel fought the European Commission's recommendation that Ireland be taken off the black-list because it had cut the public debt stock from 113&percent; of GDP to 80&percent; in less than a decade. Twelve months later, he opposed lifting condemnation of Denmark even though the government had reduced the deficit to 1.5&percent; of GDP and sliced 8&percent; off the debt stock over two years.

Now it is the turn of Germany's closest monetary ally, the Netherlands. The Commission is proposing that The Hague be given ministerial approval for its efforts in reducing the deficit to 2.4&percent; last year from 4.0&percent; in 1995. But the country's public debt is falling at a snail's pace, to 78.5&percent; of GDP last year from a high of 80.5&percent; in 1993.

Although German officials have made their feelings plain at recent monetary committee meetings, they have not yet said whether Waigel will actually vote against absolving the Dutch at next week's meeting.

Instead, the Germans may issue a unilateral declaration that the debt target should usually be met in full and will be taken more seriously once the monetary union is created.

This will have key importance for Waigel himself. It is still unclear whether his government will manage to keep the deficit below 3&percent; of GDP this year without further fiscal efforts. But it is certain that he will be unable to stop the debt-to-GDP ratio rising from 60.7&percent; to around 62&percent; as the costs of servicing the deficit mount up.

In a mirror image of previous years, other finance ministers will vote to approve the Commission's recommendations. They will agree that Ireland, Luxembourg and Denmark, together with Finland and the Netherlands, have all got their government finances under control.