Macroeconomics and Policy

Three percent deficit criteria

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.

The criterion that the budget deficit should remain below 3% of the GDP may not prove effective in the long run. This is the view of

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.

'The Maastricht Treaty' describes

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.

What do you infer about the policy of the currency union?

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.

Fiscal stability of the EMU is necessary because

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.

What do we come to know about the condition of Germany from the passage?

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.

Creative accounting in the passage refers to

Passage – I

The European Union must launch its planned single currency on time or risk serious set-backs even though Germany- the driving force behind integration- might itself miss key entry targets, senior German central bank officials said on Monday night.
Three members of the Bundesbank’s ruling council, speaking at separate events in Germany, warned that nations struggling to meet the fiscal entry criteria while still recovering from severe recession should avoid any temptation to postpone the 1999 start of the monetary union.
Although this might seem like a less painful, and therefore, a desirable option, Mr. Guntram Palm, president of the state central bank in Beden Wuerttemberg, said all talk of delaying the start date was “totally misplaced”.
Such a decision would lend to an immediate, severe appreciation of the German mark, which would hurt German exports as well as stunt nation’s efforts to achieve a further consolidation of finances.
One reason that talk of a delay has reached new heights might be that so many nations, including Germany, risked missing the key criteria which call for an aspiring nation’s budget deficit to remain below three percent of gross domestic product (GDP) and that its debt should not exceed a reference value of 60 percent of the GDP.
Klaus-Dieter Kuehbacher, president of the state central bank in Berlin and Brandenburg, said that he doubted whether the German government would reach its goal of holding its budget deficit to 2.9 percent of GDP in 1997.
But the three also acknowledged that the deficit goal was only one of a number of entry criteria and that it might ultimately not be the most instrumental to sustaining a stable currency union.
The Maastricht Treaty also states that participating nations must present stable foreign exchange rates as well as low long-term interest and inflation rates and many more nations fulfill these goals.
“In my opinion, European currency union can start in January 1999, while conforming to those EMU convergence criteria that are most often discussed.” said Ernst Welteke, president of the state central bank in Hesse. Welteke said he wondered how a budget deficit of less than three percent would be good for stability, while a budget deficit of slightly more than three percent would be negative.
At the same time, he added, “Fiscal stability in currency union is naturally a very important asset as it ensures that fiscal solidity of the individual members can be closely monitored.”
Fearing strict entry criteria could give way to creative book-keeping, Mr. Palm said, “A trick-free deficit of just over three percent in 1997 that will be further reduced in following years due to savings efforts is preferable to 2.9 percent reached through creative accounting.”
Mr. Welteke added that the three percent deficit criteria should not be a knock-out criteria”, prohibiting any nation just over that level from entering. Both Mr. Palm and Mr. Welteke feel the currency union will go ahead as planned with Germany and France, noting that a currency union without them would make little sense. Officials, however, part ways on whether the union will be a small or a slightly larger one at the beginning. Mr. Palm noticing that most nations already meeting the other criteria, forecasts a bigger circle, but Mr. Kuehbacher saw fewer members.