960424

Bundesbank urges

countries to cut

more fiscal fat

FRANKFURT: Germany's central bank has urged governments to cut more fiscal fat as recent reduction efforts were insufficient to secure lasting economic growth.

Even at times of sluggish economic growth, nations must work relentlessly on consolidating fiscal policy, the Bundesbank said in its 1995 report, released on Wednesday.

"Rather than putting in periodic efforts, it is imperative that convincing, credible concepts be worked out to ensure permanent savings," the Bundesbank wrote.

Worried that many nations' 1995 budget deficits were near 3.5 percent of gross domestic product and that government debt outpaced domestic income, the Bundesbank said the relation between state debt and domestic product must decline.

"Industrial nations agree that it is key to curb state spending since higher taxes and spending would erode any positive effects."

In a foreword to the report, Bundesbank President Hans Tietmeyer urged nations to redouble their fiscal consolidation efforts especially in the light of Europe's planned currency union, slated to begin in 1999.

"In order for convergence criteria to be met in 1998, it is key that the groundwork be laid appropriately."

Germany must itself adhere to a stringent savings programme to get fit for currency union, the Bundesbank said.

Germany exceeded the three percent deficit criteria for the single currency in 1995 and has forecast that it will again exceed the reference value this year.

"Germany's budgetary planning for the coming year must be characterised by clear progress in consolidation," the Bundesbank said.

The Bundesbank also said key European currencies had managed to appreciate against the mark in 1995 even though the rate at which the mark appreciated over the last two years was still high in long-term comparison.

"In a slightly longer observation period, including the year 1994, the rate of appreciation of the external value of the mark stands at 4.5 percent, which is still high," the Bundesbank said.

Since last spring the Italian lira has appreciated by 20 percent and the Spanish peseta by 11 percent, the Bundesbank said, illustrating the rise in European currencies.

Turning to employment, Tietmeyer urged unions and employers to show greater job market flexibility and called on legislators to help chip away at restrictive labour laws in order to pave the way for lasting economic growth.

The Bundesbank warned expansive fiscal and monetary policies would merely be a flash-in-the-pan and inappropriate methods to tackle unemployment.

The Bundesbank itself shed 691 jobs or four percent of its workforce in 1995, reflecting a rationalisation within the bank and in Germany's banking sector as a whole, it said.

The Bundesbank closed five branch offices in 1995, reducing its network to 177 branches.

The job cuts reduced the Bundesbank's total staff to 16,373 at the start of 1996 from 17,064 at the start of 1995.-Reuter