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EU Clears Hurdle on Euro Stability Reform
BRUSSELS, Belgium, Mar. 20, 2005
(AP) European Union finance ministers cleared a major hurdle Sunday in efforts to reform the rules underpinning the stability of the euro, meeting German and French demands for room to spend their way out of economic problems, officials said.
They reported a deal to ease the "Stability and Growth Pact," while retaining its key requirement that a euro-zone nation's annual budget deficit cannot exceed 3 percent of gross domestic product.
The agreement ended five months of tortuous negotiations during which Germany and France led demands that the stability rules be interpreted less strictly by the European Commission to giving governments space to stoke growth by increasing public spending.
A Dutch diplomat said Germany's partners rejected Berlin's long-standing demand that its massive German unification payments be seen as a valid reason to violate the stability pact's austerity rules.
Germany already has spent some euro1.5 trillion euros (close to US$2 trillion) on its post-Cold War reunification finance since 1990.
"But there is an agreement by the finance ministers to consider 'European unification' costs as a credible reason to overshoot the 3 percent deficit target," said the official.
In that case a government may post a budget gap of 3.25 percent of GDP, but only "temporarily," the official said.
The ministers continue to debate demands by eastern EU members, which joined the EU last year, that their expensive efforts to build up pension funds will not be used to keep them out of the euro in future years.
Officials expected the issue to be resolved.
The reform of the euro rules were contained in a 19-page report, drafted by Luxembourg Premier Jean-Claude Juncker, whose country now holds the rotating EU presidency.
They aim to strengthen and clarify the euro rules' application by the European Commission.
Berlin, Paris, Rome and some other capitals have complained the Commission has been heavy-handed and inflexible in that so far.
Under Juncker's plan, countries exceeding the 3 percent budget norm may in the future invoke their own reasons why they should be allowed to violate the stability rules _ a move that points to a looser interpretation of a country's economic performance and outlook.
Any country exceeding the deficit limit may get up to five years to come back into compliance.
Germany is keen to cite its large contributions to the EU budget _ of which it pays 22 percent _ as a mitigating circumstance to miss the 3 percent deficit rule.
France wants to use its spending on research and defense as an excuse to break through that ceiling without getting notices from the European Commission.
It was expected the new stability rules _ replacing those written in the late 1990s _ will be endorsed by the 25 EU leaders, who open a two-day summit in Brussels on Tuesday.
Euro reform negotiations began in September. From the start, the Netherlands, Sweden, Austria, Slovakia, Estonia, Latvia and Lithuania have resisted a significant weakening of the stability pact, while Germany and France have said they need to use public funds to stoke growth, even if it means making the 3 percent rule meaningless.
Complicating matters is the fear that rewriting the euro rules will give the European Commission a bigger role in monitoring compliance. Increasingly, national capitals want the EU not to meddle in national economic policymaking.
The euro is the common currency of 12 EU nations: France, Germany, Italy, Spain, Portugal, the Netherlands, Belgium, Luxembourg, Ireland, Austria, Finland and Greece.
Since it came into circulation in 2002, France and Germany have repeatedly violated the 3 percent of GDP rule, but resisted sanctions from the European Commission by rallying support from other countries that the Stability and Growth Pact must not be interpreted too strictly.
padisha emperor said:Yes, France and Germany didn't always respect the Pact of Stability.
But they have excuses.
If this pact is too stricly interpreted, and that with a such interpretation, France and Germany have large problem in EU, it would be the whole EU who would have problems.
be sure that France and Germany do their best to reduce the deficit, but there are also all the interior spends. The 2 countries have their problem.
Greece lied to enter in the Euro zone, France and Germany are only a little upon 3 percent.
I know, and the politics also, that it is a problem, but with some grow previsions, the situation would be better soon.
Oh I am ever so concerned about the EU. I am kept sleepless with the idea they may invade my country down the road, when they choose to spend the money, after they solve all the world's problems. Of course first they must get rid of their vermin in the eastern part of the continent, not to mention the nasty islands off the continental coast.padisha emperor said:Do you know perfectly the way of function of the EU ?
No, probably.
Are you concerned by the EU ? no.
(remember, for you, I was not concerned by the election of the US president, so....)
USA's deficit, I believe, is awesome.
France and Germany are a little upon the limit, they will be down it soon, so where is the problem ?
