Dutch finance minister: Germany, France hurting euro economy by going opposite ways

Netherlands: Germany and France jeopardize pact

BRUSSELS — The Netherlands charged Tuesday that France and Germany are running their economies so differently that they are threatening the rules that underpin the stability of the euro.

Dutch Finance Minister Wouter Bos said France and Germany “are sending different signals about how they regard the necessity to put public finances in order.”

He told reporters that it was “worrisome” that neither Berlin not Paris will acknowledge publicly that they are taking vastly different paths to return their slumping economies to growth.

That, he added, was eroding confidence in the euro budget rules that require governments to contain debt within certain limits.

While the German government has advocated limiting debt and bringing government spending back in line, French President Nicolas Sarkozy has said “he sees no reason to commit himself in that sense” and plans to allow the deficit widen to stoke growth, Bos said.

“That kind of nonintervention can have devastating effects” on the euro stability rules at a time when most of the 16 euro-zone nations have budget gaps far exceeding the limit of 3 percent of gross national product, he said.

Government debt and deficits have soared over the last year as the financial crisis forced them to spend heavily to rescue banks, shore up their currencies and pay out more in welfare benefits while tax revenues shrank during the downturn.

“It is a worrisome development that the two largest nations of Europe appear to take such divergent directions. The political signal they send is confusing. And it can have a potentially destabilizing factor in economic terms,” Bos told reporters.

“We must be careful in questioning the pact. Before you know it, you have lost it. And you will get nothing in return,” he said

The Dutch worry that other nations will follow France’s lead in ignoring prudent budget rules. That could deepen and lengthen the current recession.

“If there are no rules then small countries will be the first to suffer” from the a lack of trust in the euro, Bos said.

The EU executive has set strict deadlines for several countries — many of them in eastern Europe — to curb their deficits and says it expects them to stick to them.

Critics say this forces harsh public cutbacks on recession-hit nations such as Ireland and Latvia that could suffer from the government’s inability to spend their way out of the downturn.