Germany's Ruling Social Democrats Question EU Budget Rules

Berlin's commitment to the European Union's budget rules is increasingly under scrutiny as Germany's Social Democrats, the ruling party, consider abandoning the stability and growth pact's budget deficit rules in favor of increased spending on research and innovation. The developments indicate a growing willingness to disregard EU budget constraints, with Chancellor Gerhard Schroder's successor, Franz Muntefering, suggesting that research and development goals take precedence over the 3 per cent budget deficit limit. This shift in stance may foreshadow a more significant shift in the government's budget policy, particularly in light of revenue shortfalls and upcoming budget announcements.

Key Takeaways:

• The Social Democrats, Germany's ruling party, are reconsidering their commitment to the European Union's budget rules, specifically the 3 per cent budget deficit limit in the stability and growth pact.
• The party's chairman, Franz Muntefering, has expressed a willingness to set aside the budget deficit limit in favor of increased spending on research and innovation, aimed at achieving the EU's Lisbon Agenda by 2010.
• Germany's current spending on research and development is approximately 2.5 per cent of GDP, while the target is to reach 3 per cent by 2010 under the Lisbon Agenda.
• The government's finance minister, Hans Eichel, insists that the budget consolidation policy must continue, while other ministers, such as Joschka Fischer, argue that additional spending cuts to comply with the stability pact would hinder economic recovery.
• Germany is likely to fail to comply with the 3 per cent budget deficit rule for the fourth consecutive year, with officials admitting as much this month.
• French officials have also openly flouted the pact, avoiding sanctions in 2004 for failing to comply with the budget deficit limit.

Statistics:

• Germany's current spending on research and development is approximately 2.5 per cent of its GDP.
• The EU's target for research and development spending by 2010 is 3 per cent of GDP.
• Germany is expected to spend approximately Euros 50 billion less on taxes than previously forecast between 2004 and 2007.
• The Lisbon Agenda aims to make the EU the world's most competitive region by 2010.

Sources:

• "Muntefering hints at budget rule breach" by Hugh Williamson, Financial Times Deutschland (exact date not provided)
• "Germany forced to cut spending" by the Financial Times' sister newspaper, Financial Times Deutschland (exact date not provided)
• "French EU presidency wins budget approval" by the Associated Press, exact date not provided
• Additional reporting by Karin Nink in Berlin