Germany warns of risk to euro

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The Independent Online
GERMANY was forced to issue a stern warning against breaches of the tough spending rules for countries inside the euro yesterday, as the currency dipped to its lowest level yet against the dollar.

With confidence in the fledgling currency continuing to slump, Hans Eichel, Germany's finance minister, said that a lack of respect of budgetary rules was undermining the euro on financial markets.

His intervention came as the European Union's finance ministers meeting in Brussels struggled to improve economic co-ordination and agreed to restrict public comment about the value of the euro to pronouncements by the finance minister of the country holding the EU's rotating presidency.

Yesterday the euro, which has plunged 13 per cent since its launch on 1 January, fell as low as $1.0131, down from its rate of $1.0185 last Friday. The fall was blamed on a view in the markets that the European Central Bank will not intervene to stop the slide.

Although Mr Eichel did not refer directly to the level of the currency, he reawakened a long-running dispute about the performance of the Italian economy, blamed by some for the weakness of the euro. "There is a lack of respect for the stability provisions in the Treaty and that does jeopardise the whole euro area through the markets," Mr Eichel told colleagues meeting in Brussels. "We are all in the same boat. We all have the same shared interests. We want to fully exploit the growth potential of EMU and strengthen the euro. Close co-ordination of economic policies is therefore necessary," he added.

Under the Pact for Growth and Stability, member states' public deficit should not exceed 3 per cent of gross domestic product. Earlier this year the markets reacted badly when Italy said its deficit could increase from the planned ceiling of 2 per cent to 2.4 per cent - although the figure is well below the 3 per cent limit.

Mr Eichel's critics pointed out that Germany had held the chair of the EU finance ministers when Italy was allowed to revise its plans, making his criticism inappropriate.

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