ECONOMY

Christodoulakis speaks up for the EU’s Stability and Growth Pact

Greek Finance Minister and Eurogroup chairman Nikos Christodoulakis said on Saturday that Europe’s growth should be only temporarily affected in the event of a US-led attack on Iraq. Christodoulakis, who heads the informal group of eurozone finance ministers during Greece’s six-month rotating EU presidency, also dismissed concerns that strengthening the single currency could hurt economic recovery. «I don’t think the effect will be lasting… If a war erupts in Iraq, it will put a strain on our economies but will have no permanent effect,» he told a news briefing. Asked whether the euro’s gains versus the dollar could hurt Europe’s growth prospects this year, Christodoulakis said: «I see no reason why a stronger euro should be a reason for concern.» Fears that a stand-off over Iraq’s suspected weapons of mass destruction will lead to a US-led war have weighed on the dollar, which on Friday slid to a fresh three-year low against the euro at $1.0573. A stronger euro helps keep inflation low, a key condition for sustained long-term growth, but makes it harder for eurozone exporters to compete in international markets. Christodoulakis added that despite the uncertainty surrounding the Iraq crisis and a possible jump in oil prices, conditions were in place for growth to pick up this year after a sluggish 2002. No need to rewrite pact He also renewed his defense of the European Union’s fiscal stability pact that puts a lid on budget deficits of 3 percent of the economic output, saying it provided sufficient elbow room to deal with swings in the economic cycle. «I think the Stability and Growth Pact is a very useful set of rules. We cannot change them because of temporary problems. I think it provides all the necessary flexibility,» Christodoulakis said. «Growth must be firmly based on fiscal stability.» As last year’s sharp economic slowdown hit tax revenues and swelled dole queues, Germany, Europe’s biggest economy, fell foul of the rules as its 2002 deficit broke the EU limit and other states came close to the danger zone. Concerns that radical belt-tightening at a time of sluggish growth would only make things worse led the European Commission to propose a reform of the pact so that it pays more attention to underlying budget positions, stripping out the impact of economic swings. The Commission also wants to give more prominence to overall public debt levels and reward countries with lower debt. But Christodoulakis said any changes should focus on better implementation of the pact rather than rewriting of the rules. «If there are ideas as to how to apply this flexibility, they can be discussed, but they should not by any means lead to a wider change of the pact.» A shift in focus of the pact toward debt could be bad news for Greece. The eurozone’s fastest-growing economy has kept budget deficits safely below the 3-percent cap but is one of the 12-nation bloc’s most indebted nations. Its public debt stood at more than 105 percent of GDP in 2002, well above the EU’s 60-percent benchmark.