ECONOMY

Talks on EU budget reform

BRUSSELS – EU finance ministers set aside differences to report positive preliminary talks on the European Union’s budgetary rules yesterday, leaving the hard bargaining for later while keeping their sights on a deal by March. Luxembourg Prime Minister Jean-Claude Juncker, who chaired their meeting in Brussels, told a news conference that countries with the most extreme positions on the future of the Stability and Growth Pact were moderating their stances on a revamp. «We are making progress, the various positions are moving closer and I hope we can conclude within the deadline,» he said. The pact was designed as a warranty for the euro, to ensure that profligate governments did not knock it off course. But France and Germany, suffering from an economic downturn, exceeded the pact’s budget deficit limit – 3 percent of gross domestic product – for a third year in a row last year, and are among EU states pressing for a loosening of the rules. Germany, undaunted by criticism from its own central bank, pursued its campaign at yesterday’s meeting, arguing governments should not be systematically subjected to disciplinary procedures when deficits exceed the limit. Chancellor Gerhard Schroeder advocated a more flexible tack and less rigid application of sanctions procedures that in any case have never been applied to the full extent – fines. Several ministers, including those who are most adamant that the pact should not be watered down – Austria and the Netherlands above all – said the discussions in Brussels had in the end been quite positive. Juncker said nobody supported the idea that some types of public spending be excluded when assessing deficits. This would amount to a retreat by Germany and France on demands for more lenient treatment of military and research spending. Supporters of tight fiscal policy also received backing from German President Horst Koehler, who helped write the pact when he was state secretary. «I can only advise that one does not take debt lightly as that is a burden on future generations,» Koehler said after meeting Belgian Prime Minister Guy Verhofstadt. The level of overall debt is likely to be given more weight in a revamped pact, Juncker later told the European Parliament. «Debt has been completely ignored in the Stability Pact,» he said, adding there was support for telling heavily indebted states how much they should trim debt in a revamped pact. European Central Bank President Jean-Claude Trichet, who has demanded there should be no watering-down of the pact, declined public comment during the talks in Brussels, but the Bundesbank in Germany issued a statement warning against any dilution. Divisions among some countries bubbled close to the surface, with Austrian Finance Minister Karl-Heinz Grasser saying at one moment he shared the ECB’s concern about loosening the pact’s rules. But he too sounded an upbeat note. Belgium’s Didier Reynders said a consensus was emerging on the need to cut deficits more in good economic times, so that governments have more leeway when in tough times. The need to revise the pact became apparent in November 2003 when ministers suspended disciplinary action against France and Germany, which have bust the deficit limit since 2001. In addition to pact talks, ministers launched a new phase of disciplinary moves against Greece. Major revisions to Greek data have shown it broke the EU deficit cap every year since 1997.