Agency Report –
The German government is closely following the unfolding budget crisis in France, Finance Minister Lars Klingbeil said on Friday, amid concern that it might spark instability across the euro area.
Speaking at a meeting with EU counterparts in Copenhagen, the minister noted that “there are no signs whatsoever that the political challenges in France are currently threatening the eurozone.”
But he said he was closely watching events in Paris, adding that Berlin puts particular importance on Germany and France as an axis fuelling European unity and reform.
The French government collapsed last week after prime minister François Bayrou lost a vote of confidence after less than nine months in office over planned austerity measures.
France, the second-largest eurozone economy behind Germany, now has the third-highest debt ratio in the European Union at 114%, after Greece and Italy.
The country’s budget deficit recently reached 5.8%, well above the EU limit of 3% of economic output.
Government spending is also among the highest in Europe. There have long been concerns that France could slow down the EU’s already weak economic development.
Last year the European Commission launched disciplinary proceedings against Paris due to excessive new borrowing, but there are fears in Brussels that the situation could worsen even further.
Further deterioration in France could result in a renewed loss of confidence in the eurozone, even though the 20-member currency area is now considered to be much more crisis-proof than it was during the Greek debt crisis.
