Germany and France’s Socialist governments have pledged to pursue policies of budgetary rigour

Date: 14/01/1999

in the euro area. In a joint paper released this week, German Finance Minister Oskar Lafontaine and his French counterpart Dominique Strauss-Kahn promised a “significant reduction” in budget deficits to avoid “choking” on public debt. Public spending increases will be kept below the potential economic growth rate, although deficits will be allowed to widen during recessions. The paper includes a statement of Socialist principle that while “markets are powerful instruments for creating wealth”, they cannot do everything and “governments have a responsibility to compensate for market failures”.