Harsh Limelight Shines on EU's Stability Pact

November 24, 2003 - 0:0
BRUSSELS(AFP) - EU finance ministers will convene this week for another bout of monthly drama with Germany joining France centre-stage for flouting the euro zone's budget rules.

In one of the longest-running shows in Brussels, France has been playing the bad guy by continually ignoring calls to get its public deficit below 3.0 percent of gross domestic product (GDP).

Now Germany, which ironically wrote the script when it drafted the European Union's Stability and Growth Pact in 1997, is also accused of fluffing its lines.

Both France and Germany are on course to breach the stability pact's 3.0 percent rule for three years running next year.

The finance ministers will today and tomorrow recommendations by the European Commission -- the EU's executive arm -- for the heavyweight pair to redress their deficits or face big fines.

But German Finance Minister Hans Eichel, echoing many in the EU, has said forcing the 12-nation euro zone's biggest economy to tighten its belt will bring nothing but harm.

"Extra budgetary measures would put the brakes on the recovery and prolong the crisis," Eichel said in an interview with Saturday's edition of Die Welt newspaper.

Germany argues that its Agenda 2010 program of hard-hitting structural reforms is exactly the kind of bold policy the Commission has been demanding for so long, and is as much as its economy can withstand for now.

France, on the other hand, has shown little inclination even to pay lip service to the demands of EU Economic and Monetary Affairs Commissioner Pedro Solbes.

This time a year ago the zone's second-biggest economy thumbed its nose at appeals from its euro-zone partners for tougher action on its deficit.

Month after month at meetings since of the EU's economy and finance council (Ecofin), French Finance Minister Francis Mer has displayed scant regard for Solbes' entreaties. And diplomats say that the number of EU countries that support a hard line against France and Germany has dwindled to just three -- Austria, Finland and the Netherlands. This week's Ecofin meeting has only the French deficit listed on the agenda issued by the EU's Italian presidency, with the German situation merely a possible item for discussion.

But the pair have been insisting that their cases be treated in tandem, making it more likely that the ministers will opt on Tuesday to postpone a vote on their deficits until next month at the earliest.

That would risk shelving the matter until an EU summit on December 12-13, which already has a packed agenda dominated by a last-minute push to agree the EU's first-ever constitution.

One option being touted is for the Ecofin ministers to issue a policy statement requiring France and Germany to bring down their deficits at some point, without following the letter of the stability pact.

But Solbes is not prepared to compromise, and insists that the member states will have to explain themselves publicly if they fail to uphold the pact.

"Can we really afford to coordinate our economic policy, the most important pillar of our currency, by way of gentlemen's agreements?" he wrote in the German business daily Handelsblatt last week.

The European Central Bank is also carping from the wings, warning that a lack of budgetary discipline could fuel inflation in the euro area.