NICE, France: EU governments yesterday pledged to make boosting economic growth their priority without backing away from efforts to limit spending and budget deficits.
French Finance Minister Christine Lagarde — who led talks on the economy between the 27 EU nations — said Europe would focus on growth and increasing purchasing power, while trying to curb price increases that damage the stability of the economy, a nod to the wishes of European Central Bank.
She said ministers agreed on indirect measures to support growth, such as continuing to open their economies, helping small businesses gain more access to credit, and beefing up financial supervision to help prevent bank collapses.
Governments have ruled out a billion-euro EU-wide spending program to boost the economy similar to what the United States opted for this year — although some countries such as France and Spain are increasing state spending to speed up slowing growth.
“We will continue to comply with the (budget) rules which fix a clear goal of reducing deficits within the 3 percent limit,” she said.
Euro nations are required to keep deficits — the yearly difference between what a government spends and receives — under 3 percent of gross domestic product in an effort to keep their shared currency stable. France, Ireland and others may dance with that limit — or even exceed it — this year, economists say.
Lagarde said the European governments are dealing with a triple shock: The global financial crisis, spiraling energy and commodity prices that are fueling inflation, and an expensive euro, which is squeezing exporters.
Faced with higher prices at the gas pump and grocery store, Europeans are spending less on other purchases this year — hurting an economy that relied on domestic demand for growth.
Ministers talked about countering higher prices by reducing sales tax rates on restaurants and small businesses — a move Belgian Finance Minister Didier Reynders said was more important than ever as Europe struggles with a sharper-than-expected slowdown.
France and EU officials insisted some progress had been made on the long-stalled deal to get all 27 EU countries to agree to reduced value-added tax rates for a range of goods and services.
Lagarde said talks on this would continue in October when the European Commission sets the costs of specific plans to cut VAT.
But Germany was far more skeptical, claiming that it and seven other nations are blocking a deal.
German Finance Minister Peer Steinbrueck said he did not believe lower VAT would boost the economy and the move could cost Berlin up to 12 billion euros ($17 billion) in revenue.
France, which leads talks yesterday, has long wanted to win reduced sales tax rates for restaurants and other small businesses, saying they could boost consumption and help speed up a sluggish economy.
Earlier this year, French President Nicolas Sarkozy also called for lower EU sales tax rates on fuel to help ease the cost of rocketing oil prices — even though heavy hitters such as Germany, Sweden, the European Commission and others oppose this because it will not curb consumption at a time when Europe is trying to become more energy-efficient.
