European Commissioner Backs Germany's Resistance To Forward Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

07 November 2001

European Monetary Affairs Commissioner Pedro Solbes has spoken out in favour of German Finance Minister Hans Eichel's decision to resist calls to bring forward tax cuts to boost the economy. Solbes warned: 'Economic stimulus programs that drive the budget deficit higher cannot be called good.'

He said that if brought forward the effects of the tax cuts would not be felt for at least a year to eighteen months and the balance between monetary and fiscal policies could be negatively affected. 'With higher deficits, it would become very difficult for the European Central Bank to cut interest rates,' he added.

Solbes also cautioned against following American-style economic policies. The United States, he explained, can utilise its budget surplus to fund economic programmes, but EU states do not possess such a surplus. Germany's budget deficit is rising rapidly and the Commissioner predicted that the nominal deficit for 2001 and 2002 is likely to be over 2 per cent of gross domestic product, but not above 3 per cent.

Recommended