Germany's Merkel defends budget discipline drive

By GEIR MOULSON
Associated Press
BERLIN
Germany defended its pro-austerity stance on Tuesday, with Chancellor Angela Merkel and two ministers pressing for Europe to stick with a policy of fiscal discipline in spite of the latest bout of political uncertainty.

Financial markets in the 17 countries that use the euro were shaken Monday by concerns that an agreement on strict deficit targets agreed to by European leaders earlier this year was beginning to unravel.

French Socialist Francois Hollande, who has pledged to renegotiate the pact to give greater emphasis to growth, edged ahead in Sunday’s first round of presidential elections. Meanwhile, the Netherlands faces early elections after its minority government collapsed over a failure to agree on austerity measures.

In addition, Spain _ which is going through a harsh program of cuts and tax increases _ announced it was entering a recession.

Merkel didn’t specifically mention the deficit agreement pact in a speech in Berlin but noted that, in its early years, West Germany ran up barely any debt. She said that “today, we have to get back to that situation.”

Merkel’s powerful finance minister, Wolfgang Schaeuble, insisted that the deficit agreement “will be ratified in all countries, I have no doubt about that.”

Every member of the 27-country European Union except Britain and the Czech Republic signed the treaty. But most still have to ratify it, and Ireland will hold a referendum.

Schaeuble said that much has been done to strengthen the eurozone. He said that “we are in the process of winning back confidence on the markets” and cautioned against “producing new crises every two days in the media.”

Stock markets in Europe Tuesday recovered some of the ground they had lost in the previous day’s turmoil. However, concerns about the debt crisis were still seen in the day’s Spanish and Italian bond auctions.

Yields on Italian two-year bonds jumped a full percentage point to 3.36 percent from 2.35 percent a month earlier. Yields also spiked at a Spanish auction of short-term debt, rising to 0.634 percent on three-month bills from 0.381 percent and to 1.580 on six-month bills from 0.836 a month ago.

Germany and France, under incumbent President Nicolas Sarkozy, have piloted rescue efforts for other eurozone countries as the region has been swept up in a succession of debt crises over the past two years. Berlin has insisted on an often-criticized emphasis on budget discipline and cuts.

Merkel pushed hard for other European countries to agree to the fiscal agreement, designed to limit government overspending, and 25 national leaders signed it earlier this year.

Also on Tuesday, Foreign Minister Guido Westerwelle said that “we agreed on the pact after long negotiations. It is necessary.”

It isn’t yet clear when the German Parliament will vote on the pact, which needs a two-thirds majority.

That means it needs the support of the main center-left opposition Social Democratic Party, which wants the government to agree to introduce a financial transaction tax _ though leaders have stopped short of saying that is a condition.

Merkel’s government aims to get the fiscal pact passed before the summer. Social Democrat leader Sigmar Gabriel has argued that a vote could take place later.