Merkel raps Italy, France over budgets

December 8, 2014

France's President Hollande talks with Italy's Prime Minister Renzi during the Asia-Europe Meeting (ASEM) in Milan

Euro zone finance ministers meet in Brussels to discuss member states’ 2015 budget plans. We know the European Commission thinks France, Italy and Belgium are breaking EU deficit rules but will defer decisions on any action until March. At that point, France could face a multi-billion euro fine and Italy and Belgium be put on a disciplinary programme.

In an interview with German daily Die Welt, Germany’s Angela Merkel called on Italy and France to take steps to rectify their budgets ahead of the March deadline.
Sandro Gozi, Italian undersecretary for EU affairs, said Merkel should focus on German domestic demand, its lack of investment and its giant current account surplus. French Finance Minister Michel Sapin said her remarks were probably aimed at her CDU party which holds its annual congress this week.

Standard & Poor’s cut Italy’s credit rating late on Friday from BBB to BBB-, just one notch above junk. S&P forecast growth would be just 0.2 percent in 2015. Having said that the Bundesbank has cut its growth forecast for the mighty German economy to just 1 percent next year. Italian bond futures have dropped at the open.

After industry orders leapt last week, German industry output – just out – has underwhelmed by inching up just 0.2 percent in October. The Bank of France has forecast growth of 0.1 percent in the fourth quarter of the year.

European Central Bank chief Mario Draghi will be at the Eurogroup meeting having pushed the envelope as far as he could last week, saying a review early next year would decide whether money-printing to buy government bonds was needed. He said he didn’t need unanimity within the ECB to force it through – a message aimed at his German colleagues among others.

There is little sign of fiscal stimulus to share the ECB’s burden with Berlin looking to balance its budget and European Commission President Jean-Claude Juncker’s investment plan overwhelmingly reliant on the private sector.

Greece will also figure high on the Eurogroup’s agenda. The ministers are set to discuss a credit line to help it quit its EU/IMF bailout. They are eyeing 11 billion euros granted to Athens to recapitalise Greek banks which was never used.

Athens is running short of time to reach a deal on its final bailout review. The main sticking point is a potential budget gap next year. EU officials are now talking about extending the bailout until mid-2015 and say Greece would have to request an extension by Dec. 15, before euro zone parliaments break up for Christmas, because a deal on a new credit line will not be ready in time.

Greece’s parliament voted through next year’s budget overnight despite the fact that its EU/IMF lenders have not signed off on it. If the loan programme, with all its attached strings, continues to hang over the country it is likely to play badly for Prime Minister Antonis Samaras who may be forced into calling early elections next year.
Left-wing Syriza are waiting to capitalize. That fact gives Greece’s lenders a powerful incentive to keep the show on the road.

EU foreign policy chief Federica Mogherini and two EU commissioners will visit Turkey on Monday and Tuesday in one of the highest-profile EU visits in years. They will press Ankara to cooperate more closely in the fight against Islamic State and urge it not to undermine EU sanctions on Moscow. Turkish President Tayyip Erdogan hosted Russia’s Vladimir Putin after Russia scrapped the South Stream pipeline to supply gas to southern Europe without crossing Ukraine and named Turkey as its preferred partner for an alternative pipeline.

Ukrainian President Petro Poroshenko said a preliminary agreement had been reached to hold talks in Minsk on Tuesday on implementing a September ceasefire deal with eastern separatists. During stopover talks in Moscow, French President Francois Hollande said a truce could be restored in eastern Ukraine in the next few days. The Russian president concurred.

Ukraine’s state energy firm Naftogaz transferred $378 million to Russia’s Gazprom, paving the way for the first shipments of gas since Moscow cut supplies in June.
An International Monetary Fund mission will visit Kiev for nine days from Tuesday to discuss a $17 billion bailout programme. Near-penniless Kiev wants the next loan tranche, worth $2.7 billion, before the end of the year but the Fund wanted a new government to be formed before holding talks.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/