Berlin unrepentant as euro rules reform drive falters

8th March 2005, Comments 0 comments

8 March 2005 , BRUSSELS - German Finance Minister Hans Eichel on Tuesday stuck to Berlin's demands for overhauling key elements of the eurozone stability pact amid growing fears that efforts to reform the euro's fiscal rulebook were losing steam. Luxembourg Premier and current eurogroup chairman Jean-Claude Juncker told reporters the drive to revamp the pact may have to be abandoned because of continuing disagreements over reform among EU finance ministers. He said an emergency session of eurogroup and EU

8 March 2005

BRUSSELS - German Finance Minister Hans Eichel on Tuesday stuck to Berlin's demands for overhauling key elements of the eurozone stability pact amid growing fears that efforts to reform the euro's fiscal rulebook were losing steam.

Luxembourg Premier and current eurogroup chairman Jean-Claude Juncker told reporters the drive to revamp the pact may have to be abandoned because of continuing disagreements over reform among EU finance ministers.

He said an emergency session of eurogroup and EU finance chiefs was being convened in Brussels on 20 March to try and break the stalemate before E.U. leaders meet for summit talks on 23-23 March. Stability pact reform is high on the summit agenda.

Eichel, however, told reporters Germany was standing by its demand that the cost of unification and Berlin's status as a net contributor to the EU budget must be viewed as "relevant factors" in assessing its finances.

Germany and France, which have been in breach of the pact's rule for governments to keep budget deficits under 3 percent of Gross Domestic Product (GDP) for several years, have spearheaded calls for the rules to be applied more leniently.

But Berlin's insistence that German unification costs and its contributions to the EU budget must be excluded from budget deficit calculations has run into opposition from other eurozone and EU states.

Eichel insisted, however, that German unification was a "special challenge for an entire generation."

He said Germany's stance would be once again explained to Juncker by German Chancellor Gerhard Schroeder in Luxembourg later on Tuesday.

France is also asking for a more flexible interpretation of the 3 percent rule. "The pact must not be excessively rigid when growth is weak," French Finance Minister Thierry Breton said, adding: "The pact must encourage sustainable public finances without being mechanical."

Smaller countries such as Belgium, Austria and the Netherlands, taking the side of European central bankers, say a loosening of the pact will encourage higher deficits which in turn could push up interest rates and hold back the economy.

Others fighting against more leniency for budget sinners include EU newcomers Slovakia, Estonia, Lithuania and Latvia, which are striving to adopt the euro.

Although outside the eurozone, Denmark and Sweden are also calling for strict enforcement of the pact.

With Germany in defiant mood, however, Juncker said there was a "distinct possibility" that the pact would remain unchanged if EU nations could not agree on a satisfactory overhaul.

This is the first time that an EU official has publicly acknowleged that the drive to change the pact may have to be abandoned. Luxembourg also holds the 25 nation bloc,s current presidency.

The stability pact was not working perfectly at the moment, Juncker told reporters. But he said he did not want to sign up to an "equally poorly functioning pact later on."

Juncker said he remained "optimistic" that the 12-state euro group could reach agreement on the reforms at the 20 March meeting.

"But at this stage I cannot really see how we can possibly get the non-eurozone member states on board," Juncker said.

Any reform to the pact has to be approved by both the 12-nation eurogroup and then all 25 EU member states.

If no deal could be hammered out, "I don,t rule out that we will stick with the pact as it is," Juncker said.  
  

DPA

Subject: German news

 

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