Angela Merkel has delivered a sharp rebuke to Italy and France for hindering the eurozone's recovery by breaking longstanding fiscal rules, reports The Guardian.
The German chancellor, under pressure following a fall in GDP in the second quarter, said faltering growth was the direct result of the 18-member currency zone's inability to punish those countries that ran high deficits in contravention of limits set by Brussels.
She said Germany had shown it was possible to cut the government's annual spending deficit while at the same time improve the economic situation.
Speaking to an audience of Nobel prize-winning economists in the Bavarian town of Lindau, she said individual countries had ignored Brussels and the European Central Bank (ECB) to continue running larger deficits than allowed by the fiscal rules. "We have very little, if any, possibility of sanctioning those countries that break the rules," she said.
Her comments echoed those of ECB president Mario Draghi, who last month warned that without moves to strengthen the fiscal pact and impose punishments on rule-breaking countries, the eurozone project could flounder. The two speeches highlight the growing frustration among senior eurozone policymakers at the failure of France and Italy to meet the 3% deficit target set by Brussels with Germany's support.
The eurozone economy stalled in the last quarter following poor output figures from France and Italy and a slowdown in Germany, much of it blamed on a drop in demand for German goods from its largest neighbours and the Ukraine crisis.
However, critics of Merkel and her finance minister Wolfgang Schaeuble, argue that Germany is the source of the currency zone's problems following its pursuit of balanced budgets while harder-hit countries have yet to rebuild their banking sectors and bolster consumer confidence.
Germany's persistent trade surplus with other EU countries is also blamed for undermining the recovery among the other 17 members, which import German goods but struggle to sell inside the EU's largest economy.
Nobel economics laureate Joseph Stiglitz criticised the chancellor on the sidelines of the conference for imposing policies that have led to high unemployment and slow growth. Merkel has resisted Stiglitz's calls for a Keynesian spur to recovery, including pooling debts in commonly-issued "Eurobonds" to allow members of the currency to borrow money at lower interest rates.
"We see the enormous price that Europe is paying," the former World Bank chief economist told Bloomberg Television. "Hopefully the reality of this failed policy will strike."
Read more of this report from The Guardian.
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