EU plans growth and stability pact reforms

Associated Press

Brussels, January 19:

European Union finance ministers made progress on talks about reforming the economic governance rules that are meant to keep the euro stable and should reach an agreement in March, Luxembourg prime minister Jean-Claude Juncker said. Juncker said that countries were abandoning their ‘extremist’ positions of either watering down the rules or keeping them in their original form, and that chances for a deal to be reached at a March 22-23 EU summit in Brussels were good. “It is in no one’s interest to drag out the discussions beyond March,” he said.

Juncker, whose country holds the EU presidency, spoke during a two-day meeting of EU finance ministers discussing plans to make the euro’s ‘Growth and Stability Pact’ less rigid.

The push to make the rules — most notably their excessive deficit criteria — more flexible is led by France and Germany. The eurozone’s two biggest economies have violated a key euro stability rule by running budget deficits exceeding three per cent of gross domestic product (GDP) for three consecutive years. However, both are on track to come under that ceiling in 2005.

German finance minister Hans Eichel said the finance ministers’ talks were held in a ‘very constructive atmosphere,’ while Austrian finance minister Karl-Heinz Grasser, until now an ardent opponent of changing the euro stability rules, said the eurozone countries were ‘on the right track.’ German Chancellor Gerhard Schroeder wants to limit the ability of the European Commission to fine governments when they run a deficit of more than three per cent of the GDP.

“The stability pact will work better if intervention by European institutions in the budgetary sovereignty of national parliaments is only permitted under very limited conditions,” German chancellor Gerhard Schroeder wrote in the Financial Times. He called for exemptions to the three-per cent deficit limit and subsequent punishment for governments carrying out economic reforms.

He also said countries going through an economic downturn or recession should also be given an easier ride. France and Germany have so far escaped legal action by the EU by promising to bring their deficits under control this year. The EU finance ministers considered France record, concluding it was meeting the target this year. They were less kind to Greece, saying it faces a hefty fine because its 2005 budget deficit will be 3.6 per cent, over the maximum threee per cent. EU finance commissioner Joaquin Almunia is to recommend austerity measures for Greece that must be approved by the EU finance ministers.