EU budget tensions emerge

25th November 2003, Comments 0 comments

25 November 2003 , BRUSSELS - European Union finance ministers Tuesday faced tough talks on French and German finances after the two eurozone economic giants struck a controversial deal allowing them to escape strict European Commission supervision of their national budgets.

25 November 2003

BRUSSELS - European Union finance ministers Tuesday faced tough talks on French and German finances after the two eurozone economic giants struck a controversial deal allowing them to escape strict European Commission supervision of their national budgets.

But signs of friction in the European Union over the budget deal quickly emerged with Spanish Prime Minister Jose Maria Aznar saying the EU finance ministers’ agreement to allow France and Germany to sidestep eurozone stability pact sanctions was "a heavy blow" to the EU.

"This is a bad day for Europe and for the economy," Aznar said at a joint press conference with Polish Prime Minister Leszek Miller in Madrid.

EU rules for economic stability must apply to all members, said Aznar.

As ministers started meeting Tuesday, German Finance Minister Hans Eichel insisted that the political deal, stitched up in the early hours of Tuesday after a non-stop nine-hour meeting of the 12 eurozone finance chiefs, did not signal an end to the bloc's long-ailing stability pact.

"We took a decision based on the stability pact. The pact is alive," Eichel told reporters.

But EU monetary affairs chief Pedro Solbes warned that the Franco-German pact was a "defeat for Europe."

The agreement, which is expected to win the approval of a majority of EU finance ministers, is certainly a political victory for the two eurozone heavyweights.

A majority of eurozone members are backing a "political declaration" under which Germany and France will be asked to bring their budget deficits below the stability pact threshold of three percent of Gross Domestic Product (GDP) by 2005 - provided economic growth matches expectations.

The statement effectively means an end to possible Commission-led disciplinary action against the two countries as well as possible sanctions worth billions of euros.

But Berlin and Paris now face the wrath of Solbes as well as Spain, Austria, Finland and the Netherlands which also opposed the move.

Critics said the Franco-German deal could signal the end of the eurozone stability pact which Germany helped draft in 1997.

Solbes warned reporters on Tuesday that the Franco-German statement violated the letter and the spirit of the stability pact’s deficit rules.

The Commission was reserving the right to pursue further steps after studying the latest compromise, he said.

As eurozone watchdog, the Commission has said repeatedly that it will apply rule which forbids countries to run up excessive budget deficits of more than three percent of GDP for three successive years.

Both Berlin and Paris are in flagrant violation of the rules.

The German budget deficit stands at 4.2 percent of GDP this year and is expected to fall to 3.9 percent in 2004 and 3.4 percent in 2005, according to Commission statistics.

France has acknowledged that its budget deficit is at four percent of GDP for 2003 and will be at 3.6 percent of GDP in 2004, but predicts a return to compliance at 2.9 percent in 2005.

Under Tuesday’s agreement, Germany is to cut its deficit next year by 0.6 percentage points of GDP instead of the 0.8 points cut being sought by the Commission.

The deficit enforcement procedure could be restarted at any time if Germany fails to meet its revised obligations.

The eurogroup agreement will be studied by all 15 EU finance chiefs Tuesday.

"I am completely disappointed," Solbes told a news conference after the eurogroup talks finally ended around in the early hours of Tuesday.

But both German Finance Minister Hans Eichel and his French counterpart Francis Mer insisted the stability pact was still functional.

"We are not running counter to the spirit of the pact," Mer told reporters.

Italian Finance Minister Giulio Tremonti who helped draft the compromise called it a "technical and political solution which in general is in line with the criteria of an intelligent interpretation of the pact."

DPA
Subject: German news



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