EU Ministers May Avoid Stability Pact Debate Despite ECB Wish for Backing
This is the ministers' first gathering since European Commission President Romano Prodi last month famously criticized the euro-zone pact as "stupid", AFP reported.
In an unprecedented move, the ECB responded by issuing a statement backing the pact as a "necessary complement of a monetary policy geared to price stability".
Economists said that without a statement from ministers in favor of the pact governing fiscal policy, the ECB was unlikely to cut rates at Thursday's governing council meeting.
Credit Suisse First Boston economists said any endorsement of the pact by ministers would boost the chances of monetary easing. Royal Bank of Scotland's Geoffrey Dicks said: "For the ECB, many euro-area governments are insufficiently ambitious on the fiscal front and should be making far greater efforts to keep within the confines of the pact. In this context, next week's ECOFIN meeting is important."
The meeting comes as the commission is considering whether to issue early warnings to such countries as France, Germany and Italy over their deficits.
Germany has said it will breach the pact's deficit limit of three percent of gross domestic product this year, while France and Italy are inching towards the ceiling.
Ministers look set to formally adopt a decision that Portugal has an excessive deficit and must take steps to rectify that. It posted a deficit of 4.1 percent of GDP last year.
However, a source from the EU's Danish presidency said any debate on the pact is likely to take place during the 12-member euro group meeting on Monday evening, on the eve of the wider gathering of ministers.
The source said there are no plans for all 15 ministers to address the question at their meetings between now and December.
"It is up to the commission, of course, if they wish to issue an early warning, but we have no indication of that," the source said.
But Sweden's Finance Minister Bosse Ringholm said Friday he would defend the stability pact at Tuesday's meeting.
Speaking to lawmakers, Ringholm denounced a "lack of discipline" by some euro-zone countries, adding it "doesn't help" the Swedish government's argument in favor of joining the single-currency zone, the news agency TT reported.
Other EU sources said Luxembourg Finance Minister Jean-Claude Juncker may press for a discussion on the pact after last week's EU summit failed to hold one. Juncker, who is also prime minister, had forced it onto the summit agenda.
The EU's smaller member states and fiscally rigorous countries such as Spain fear Prodi is pandering to heavyweights France and Germany.
"Against this background, the decision on Portugal offers ministers a chance to rebut Prodi's position, in line with the ECB's stance," BNP Paribas economist Luigi Speranza said.
"The most likely outcome of the meeting is a generic and uncommitting defense of the principles behind the pact, unlikely to convince the ECB," Speranza said.