Germany pushes for debt caps

GERMANY is pushing for Eurozone countries to have legal debt caps in the region’s “fiscal compact”, a final draft of which is expected to emerge from an EU summit tonight.

A source at the World Economic Forum in Davos told City A.M. that Berlin wants Europe to harden up the 60 per cent debt-to-GDP limit for public finances that was watered down in some recent drafts. Berlin wants parliaments to put the debt ceiling into law, rather than merely suggesting it at European level.

And Germany is pushing to keep automatic fines imposed for breaking deficit rules, equal to 0.1-0.2 per cent of GDP, rather than relying on a vote or legal action to impose penalties.

The source said that Berlin looks likely to get concessions, although the talks are still in progress.

Germany is also insisting that Greece hand over all control over its own budget before it receives its next installment of aid. A document published by the Financial Times shows that Berlin wants debt repayments to come before all other spending in Athens’ budget, a demand that has caused a political storm in Greece.

Athens’ last installment of its first bail-out is due in March, which will have to cover a €15bn (£12.6bn) bond redemption. And Greece has yet to strike a deal with its private creditors to cut down its debt.