Germany Defies Calls for Stimulus

German Chancellor Angela Merkel,  walks past flags of the European Union and Germany.
Sean Gallup | Getty Images
German Chancellor Angela Merkel, walks past flags of the European Union and Germany.

Germany has ignored calls from its euro zone partners for more economic stimulus by tabling plans to cut spending and balance its budget ahead of schedule on the eve of an EU summit dedicated to growth.

Wolfgang Schauble, German finance minister, said on Wednesday that his budget for 2014, involving spending cuts of more than 5 billion euro to trim the total below 300 billion euro, was "a strong signal for Europe".

The plan means Germany will reach budget balance in 2015, a year earlier than required under the "debt brake" written into its constitution.

He described the 2014 spending plan as "growth-friendly consolidation", intended to prove to the rest of the euro zone that "consistent sustainable budgeting and growth are not mutually exclusive".

Philipp Rosler, economy minister, said Germany's public finances were the "envy of the world".

Publication of the budget was deliberately brought forward by a week to bring out the figures before the EU summit, according to German officials. In spite of tough cuts for health, social security and environment, the plan was rushed through the cabinet well ahead of schedule.

It could scarcely have come at a more sensitive moment, with other members of the euro zone, led by France and Italy, looking for relaxation of the tough budget guidelines laid down in the stability and growth pact that underpins the euro.

Francois Hollande, the French president, whose socialist government is set to miss its 2013 budget deficit target by a significant margin, would insist that the EU summit adopted a stance that showed the EU was not just a "Europe of austerity" with a uniformly rigid budget policy, said an official in Paris.

European leaders must "define an economic strategy for budget adjustment that is balanced and intelligent, differentiated to meet the situation of different states", he added.

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France wants the emphasis of euro zone budget discipline to be on reducing structural – rather than nominal – deficits, excluding the short-term effects of economic slowdown.

In Berlin, Mr Schauble repeatedly refused to comment on the French budget situation, saying it was not appropriate to exchange advice in public. But by pressing ahead with his own budget, which would cut the net borrowing requirement to zero by 2015, he has sent a clear signal.

Diplomats in Brussels cautioned that most delegations were hoping to play down differences over austerity until at least June, when a number of euro zone policies must be decided. "I don't think people are up for a big fight," said one.

Still, pre-summit negotiations among national ministers have included pointed debates about how much to emphasize austerity measures in the summit's final communique.

According to a draft seen by the Financial Times, the conclusions call for "short-term targeted measures to boost growth and jobs" – a line that has come under criticism from a German-led group of northern euro zone countries.