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EU: Finance Ministers Reject Commission Demand On Stability Pact

  • Ahto Lobjakas

EU finance ministers today rejected a demand by the European Commission to order France and Germany to make deep reductions in their budget deficits. Both countries are in long-term breach of the Stability and Growth Pact underpinning the euro that stipulates budget deficits cannot exceed 3 percent of a country's gross domestic product (GDP). The decision was a foregone conclusion after a majority of the 12 eurozone countries decided early this morning to let Germany and France off with a political warning. The European Commission says the decision is in contravention of the pact.

Brussels, 25 November 2003 (RFE/RL) -- The decision backed today by most EU member states not to act on a European Commission recommendation to impose compulsory budget-deficit cuts on Germany and France has thrown into turmoil the guidelines underpinning the euro.

Instead, member states issued a political declaration asking Germany and France to cut deficits on their own terms, avoiding disciplinary action which could eventually lead to multibillion-euro fines.

Pedro Solbes, the EU's monetary affairs commissioner, said today he "deeply regrets" the decision. He said the eurozone's Stability and Growth Pact sets out a "clear process" of sanctions for countries like Germany and France, which have breached the budget-deficit limits for three years running.

"The commission deeply regrets that these proposals are not following the spirit and rules of the Stability and Growth Pact that were agreed unanimously by all member states. Only a rule-based system can guarantee that commitments are enforced and that all member states are treated equally. We think that by refraining from adopting the appropriate recommendations under the provisions of the treaty, the conclusions disregard in practice the legal rules enshrined in the treaty and in the pact regulations," Solbes said.

After the eurozone meeting, which finished early this morning, Italian Finance Minister Giulio Tremonti said that the solution was backed by most member states -- including Portugal, Greece, Luxembourg, Belgium, Ireland, and Italy, as well as Germany and France. Only the Netherlands, Austria, Finland, and Spain voted against. Later today, when countries outside the eurozone held their own vote, Great Britain also sided with Germany and France.

Contradicting Solbes, Tremonti said the decision is "in line with" the framework of the Stability Pact. "I don't think that the vote can be considered a breach of the treaty or the pact," Tremonti said. "We believe that [this vote] is perfectly in line with the letter and the spirit of both the pact and the treaty."

Tremonti said the decision "does not call into question" the position of the commission on the issue. He said the difference relates to procedure, not substance. Tremonti said the commission's recommendation for disciplinary action was rejected because both France and Germany had displayed a readiness to comply with the euro guidelines, albeit at a slower pace than that demanded by the commission.

Solbes, however, did not relent, and said the Stability Pact has been "used wrongly and mistakenly to justify the views of some of the member states." He also hinted at the possibility that the commission could launch a legal challenge to overturn the decision, saying he "reserves the right to examine the implications" of the decision and "decide on possible subsequent actions."

German Finance Minister Hans Eichel called the decision a "very reasonable one." Both Germany and France argue that relatively high budget deficits are unavoidable under current economic conditions to boost growth by increased public spending. The commission, however, says such growth will not be sustainable.

Even some of the smaller member states who voted against the commission have admitted they may have set a dangerous precedent.

News agencies report that the European Central Bank (ECB) will hold an emergency meeting by telephone later today to discuss the situation. The ECB is known as a staunch supporter of the pact and is expected to support the European Commission.