ECONOMY

Europeans divided over Stability Pact revision; Commission insists on policy

BRUSSELS – European Union finance officials cannot quell talk of changes to the Stability and Growth Pact that underpins the euro, despite insisting that they will not discuss it at their meeting which began yesterday in Copenhagen. Italy has repeatedly called for the budget-constraining pact to be modified, arguing for more scope to help Europe’s sluggish economy. Modifications were also urged by a senior conservative in France, which is also struggling to balance its budget to a self-set timetable because of disappointing growth. Germany faces even more acute budget woes weeks away from an election, as sluggish growth and the recent floods may push its deficit above 3 percent of output, a cap set in the pact. Moreover, German opposition leader Edmund Stoiber has distanced himself from the current administration’s pledge to balance the budget by 2004, the date it set itself to meet the pact’s medium-term goal of balanced books. Berlin on Thursday joined smaller states, the European Central Bank and the Commission in opposing a loosening of the pact, but others have no qualms about using its problems to argue for more budget flexibility. «The Stability Pact is clearly very useful if a single country is having a problem at a certain period. However, if all the countries are experiencing the same problem then there is the need to be a bit more flexible,» Vito Tanzi, an under-secretary at the Italian Finance Ministry, said in Rome. He added that with a number of European countries struggling to meet their deficit goals, including France and Germany, the terms of the pact should be revisited. The Commission has previously opposed such ideas, and Gerassimos Thomas, economic and monetary affairs spokesman for the EU executive, echoed the Italian treasury’s official line. He said the visit next week was one of the regular trips Commission experts make to member states as they prepare economic forecasts by getting input from member states’ officials on the national economic outlook and economic policy. «No discussion on changes to the Stability and Growth Pact will take place during this mission,» he told Reuters. The Commission will find staunch supporters among smaller eurozone countries as it resists any move to soften the pact. «We are moving forward sticking to the specified terms of the Stability Pact,» Greek government spokesman Christos Protopappas told reporters on Thursday. Finnish Finance Minister Sauli Niinisto and Marc Marechal, aide to Belgian Finance Ministers Didier Reynders, told Reuters on Wednesday their governments were against weakening the pact. «There are a lot of suggestions to lift investment expenditure out of the (budget calculations for the) pact but we cannot agree with that,» Marechal said. The Dutch also back fiscal discipline: «We stick to the Stability Pact. There is no reason to abandon it,» Finance Ministry spokesman Stephan Schrover said on Wednesday. But others, such as Ruairi Quinn, the Irishman who was chairman of EU finance ministers when the pact was hammered out, said it would be better for the budget rules to be changed openly rather than fudged under political pressure. The Commission is working on budget guidelines that it says will supplement the pact and give some fiscal leeway to countries which have already balanced their books. Even the ECB may be willing to countenance some changes, though signs are that it will be only in technical matters. «I believe that some proposals aimed at improving the efficiency of the application of the pact, and its credibility, without however undermining the principles and parameters, could be discussed,» ECB Vice President Lucas Papademos said. «Among other things, I am referring to the rapid publication of reliable data and improvements in the monitoring of audit procedures of public accounts,» he told a German newspaper. The Commission has said in the past that Germany’s deficit overshoot was due to a cyclical downturn rather than bad policy. Unexpected and massive costs of flooding may also win Berlin some budget leeway. «The pact allows that exceptional circumstances can be invoked to justify temporary deficits above 3 percent. So it will be in that situation and within the framework of the pact that there will be some degree of freedom for Germany,» Marechal said. Still, others may argue they also deserve leeway given their deficit woes are due, at least in part, to a sluggishness in growth which the Commission itself had not fully predicted. The Commission may have admitted to overoptimism on growth, but says that is no excuse for fiscal indiscipline. «We might have a slight change in the growth scenario but not a change important enough that would justify a change of strategy,» Thomas said on Thursday. He added that member states should continue with structural economic reforms and budget consolidation, and that the Commission’s medium-term strategy «remains very valid.»