Oct 16, 5:55 AM EDT

In dig at France, German chancellor insists Europe's credibility at stake over budget rules

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BERLIN (AP) -- German Chancellor Angela Merkel insisted Thursday that there can be no exceptions to European Union rules on national deficit targets, a clear message to France after it backed off promises to bring down its budget overspend.

France admitted last month that its 2015 budget would shred promises to bring the deficit below the EU limit of 3 percent of GDP within two years and that its 2014 deficit would increase rather than fall.

The EU executive will decide over the coming weeks whether to force member countries to revise their budgets, and France risks an embarrassing "fail" from Brussels. Patience among other EU countries that had to make budget cuts of their own is also wearing thin.

Without naming France, Merkel noted in a speech to Parliament that EU leaders in June recommitted themselves to the EU's budget rules, known as the stability and growth pact.

"All, and I stress again all, member states must respect in full the rules of the strengthened stability and growth pact," she said. "These rules must be applied credibly to all member states - only then can the pact fulfill its function as a central anchor for stability and above all for confidence in the eurozone."

Europe's economic recovery "is still too fragile for us simply to go back to business as usual," she added.

A string of disappointing economic data from Germany, the eurozone's biggest economy, has deepened concerns over prospects for the 18-nation currency area's recovery. The eurozone economy failed to grow in the second quarter, dragged down by a 0.2 percent quarter-on-quarter contraction in Germany.

Despite calls from abroad for Berlin to pump money into the economy, Merkel is determined to stick to plans to get by without new borrowing next year. That, along with a pledge not to raise taxes, was a central feature of her election campaign last year.

"I think we can show in Germany that growth and investment can be strengthened without having to leave the (budget) consolidation course," she said. "It is business and companies that create jobs and innovation - so, if we want growth in Europe, this must above all be about mobilizing private capital."

On Monday, the finance and economy ministers of Germany and France are to meet in Berlin to discuss ways of encouraging investment.


Frank Jordans contributed to this report.

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