Germany, Slovenia urge EU budget discipline

LJUBLJANA: German Chancellor Angela Merkel reiterated her call for budget discipline in euro zone states on Tuesday and welcomed Spain's move to write a debt limit into its constitution, saying other countries should follow suit.

"All members of the EU and Europe as a whole must improve their competitiveness and through strict budget discipline ensure a solid and sustainable financing of their public budgets according to the conditions of the reformed Stability and Growth Pact," she said in a joint statement with her Slovenian counterpart during a state visit.

During a news conference she did not address Italy's announcement late on Monday that it was scrapping plans to tax high earners and scaling back cuts to local authority funding.

Italy's central bank said on Tuesday a weak economy threatens government efforts to contain the country's debt mountain, while rising bond yields after a lukewarm auction put it back in the front line of the euro crisis.

Merkel also said it was necessary to push forward European integration given the debt crisis.

"We need more political union if we have a common currency, we need more Europe," she said.

In a bid to tackle the currency bloc's crisis, Merkel and French President Nicolas Sarkozy earlier this month suggested moving toward an "economic government," in which euro states agree to give up sovereignty over economic policy. That prompted criticism from abroad and triggered opposition with some in the junior coalition partners the Free Democrats (FDP) and in the conservatives' Bavarian sister party, the CSU.

However Merkel reiterated that there was a need for greater harmonisation of European policies, including adjustments to social systems and "similar tax systems."

Copyright Reuters, 2011