MNI INTERVIEW: German Opposition Easing To EU Fiscal Reform

By David Thomas

     BRUSSELS(MNI) - Germany's long-standing opposition to rules restricting the

scope for eurozone fiscal stimulus is softening as its economy weakens, European

Fiscal Board Chair Niels Thygesen told MNI.

     "I see already some movement. Germany has begun to use its fiscal space -

but it is not enough. There is a recognition that the surplus will have to be

smaller," he said in an interview, although he noted that the 0.35% structural

deficit implied by the German constitutional debt brake remains a serious

impediment to progress.

     "The climate is changing as the German economic outlook deteriorates."

     The EFB is an independent body set up to advise the Commission on the

appropriateness of fiscal policy and make suggestions for reform. Thygesen said

eurozone rules discouraging debt levels of more than 60% of GDP or fiscal

deficits of over 3% of GDP would need to be reviewed, pointing to the wide

diversity of debt levels across the single currency area and the increasing

irrelevance of the deficit limit.

     "The fact that the eurozone is facing a common shock should make fiscal

expansion easier and create more of a desire to reform the EU's fiscal regime,"

he said, although he noted that current fiscal stance of governments across the

zone remained "appropriate," given its low potential growth.

     "The problem is that expansion is coming from countries where debt is

already too high and not enough from countries with fiscal space."

     Up until now, a piecemeal approach to application of EU rules, with some

countries being granted a pass to exceed limits, had tended to disincentivise

reform, he noted.

     "At some point, one should look again at the 60% Maastricht debt criterion.

It is too high for those below and too low for those above," he said.

     Thygesen had positive words for the commitment by the European Commission's

incoming president, Ursula von der Leyen, to pursuing eurozone-wide unemployment

insurance, saying it was an "obvious" idea to explore as an economic

stabilisation device.

     Solutions could be found which might placate German opposition, he said.

     "The Commission has worked hard on some systems that may ease German

concerns."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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