Court backs EC, Dutch on stability pact
13 July 2004 , AMSTERDAM − The Netherlands welcomed a ruling on Tuesday by the European Court of Justice against EU member states mutually striking a bargain to temporarily push aside the strict Stability and Growth Pact underpinning the strength of the euro.
13 July 2004
AMSTERDAM − The Netherlands welcomed a ruling on Tuesday by the European Court of Justice against EU member states mutually striking a bargain to temporarily push aside the strict Stability and Growth Pact underpinning the strength of the euro.
The court said European Union ministers are obliged to take action against countries that breach the pact's regulations, which commits EU states to maintain their national budget deficits under 3 percent of Gross Domestic Product (GDP).
But the court also recognised that the European Council of Ministers is free to reject a European Commission (EC) proposal to impose fines on nations that run deficits above the 3 percent limit.
Despite this it also said the council had gone too far in fixing rules for resuming what is known as an "excessive deficit procedure" against Germany and France.
The Netherlands − which currently holds the rotating EU presidency and has adamantly called in the past for the pact to be strictly adhered to − welcomed the court's ruling and said it was already discussing the consequences with EU member states, French news agency AFP reported.
A Finance Ministry spokesman said the Netherlands felt it was "positive and good that the ruling brings clarification". He also said discussions about the consequences of the ruling will continue in the coming weeks.
The Netherlands also issued a press statement on behalf of the Council of Ministers of finance and economic affairs noting that France and Germany have undertaken firm commitments to reduce their budget deficits, have taken steps to implement those commitments and expects them to remain fully engaged to fulfilling the commitments.
Tuesday's court ruling represented a small victory for the European Commission, which runs daily EU affairs. It launched legal action after European finance ministers refused on 25 November 2003 to threaten Germany and France with fines. It effectively allowed Germany and France to escape sanctions.
Dutch Finance Minister Gerrit Zalm had strongly rebuked both Germany and France at the time for their continued breaches of the stability pact. Both nations could breach the 3 percent GDP limit against this year.
Such high deficits are banned under the stability pact out of concern that they can lead to higher interest rates and a weaker euro currency, Dutch associated press ANP reported.
But after losing out in the "battle of the budgets" in November, the Dutch government was left red faced when it emerged its budget deficit had also breached the pact in 2003.
Having already announced EUR 17 billion in cuts to the budget planned to take effect by 2007, the government thus resolved to cut an extra EUR 2.9 billion earlier this year to restrict the 2004 Budget under the 3 percent limit. A further EUR 750 million in cuts was agreed last week for 2005.
Meanwhile, the court ruling signifies a powerful confirmation of the stability pact, but raises the question of how power should be shared between Brussels and EU member states, Dutch public news service NOS reported.
If it is up to the court to decide, large states will no longer have the leeway to make agreements to cast the pact aside and all other countries will need to unanimously approve such a move.
But it does not mean that billions of euros in fines − reportedly EUR 10 billion for Germany and EUR 7.5 billion for France − will be imposed. European ministers will now need to devise new policies regarding this and it is possible they will fall back on the November decision suspending the German and French fines.
The commission has also reportedly suggested possible reforms to the pact, such as allowing longer periods between stages within the excessive deficit procedure to make it operate more smoothly. More details might be released in early September.
[Copyright Expatica News 2004]
Subject: Dutch news