EU leaders agree on services, stability pact

22 March 2005

BRUSSELS – European Union leaders agreed on Tuesday to redraft a controversial plan to liberalise services across the bloc, saying a new version of the blueprint must respond to concerns it could slash labour costs across the Union.

The current European Commission services proposal did not respect European social welfare standards, said Luxembourg Prime Minister and current EU chairman Jean-Claude Juncker, after EU leaders agreed at a summit in Brussels to revamp the blueprint.

Juncker called on the European Parliament, which is currently studying the proposed legislation, to make sure it enshrines social welfare in the draft in order to win necessary support of EU governments.

European Commission President Jose Manuel Barroso said the bloc would not work on a new directive but a modification of the current blueprint to respond to EU concerns.

He said both the European Parliament and leaders of the 25 member states would now be asked to comment on the draft, which would then be changed to reflect their views.

“I know it’s complicated, but that’s the way we work in Europe,” Barroso said.

Leaders from “old” EU states including Germany and France are worried that cross-border liberalisation of services could allow a flood of cheap labour from “new” member states in eastern Europe, putting their own workers out of business.

Concern has focused on Commission proposals for provision of services, under what has been dubbed “the country of origin principle”. This would allow businesses to offer services anywhere in the EU as long as they comply with regulations in their home country.

“We are not going to open the doors to social dumping,” said Juncker.

Services, which comprise 70 percent of the E.U. economy, presently fall under mainly national laws in each member state.

Opposition to the original plan – labelled the “Bolkestein directive” after its architect, former EU commissioner Frits Bolkestein – has been especially fierce in France, where the proposal has become entangled in preparations for the upcoming referendum on the EU constitution.

Recent polls showing that over 50 percent of French citizens would vote against the EU constitutional treaty have shocked President Jacques Chirac, who took a tough stand on services at the EU summit in a bid to save the referendum.

A French “no” vote on the treaty on 29 May could spell the demise of the constitution, which has to be approved by all 25 member states.

Separately, EU leaders approved a watered-down version of the euro’s fiscal rulebook to allow bigger budget deficits.

The deal on the revamped euro stability pact comes in response to pressure from Germany and France, both of which have overshot the present national deficit limit of 3 percent of gross domestic product (GDP) every year since 2002.

Berlin and Paris will now be able to spend more public money in a bid to stimulate their lagging economies.

“This is not to be construed as an invitation to start running up excess deficits and debt,” warned Juncker.

While making no formal change to the 3 percent of GDP budget deficit limit, the more lenient euro pact creates loopholes to allow countries to run up more debt.

The 12 states using the euro can now subtract from their debt calculation most payments for research and development, defence and – crucially for Germany – the huge costs of economically hard-hit formerly communist eastern Germany, where state subsidies total EUR 80 billion annually.

However, budget deficits in excess of 3 percent will have to be temporary and as close to the threshold as possible.

Another economic theme at the summit is the so-called “Lisbon Agenda”, approved in 2000 with the goal of transforming the EU into the most competitive knowledge-based economy in the world by 2010.

EU leaders have already quietly given up on this target, and there is no more talk about overtaking the United States. Instead, the EU is now seeking to stay ahead of Asian giants China and India.

Vowing a fresh start, European Commission President Barroso has proposed more state spending on high-technology research and development, setting up a European research council and cutting red tape as the way to invigorate European economic growth.

DPA

Subject: German news