Court revives euro zone sanctions against France

13th July 2004, Comments 0 comments

BRUSSELS, July 13 (AFP) - The European Court of Justice struck down in a landmark ruling Tuesday a decision by EU finance ministers that had frozen deficit sanctions against France and Germany.

BRUSSELS, July 13 (AFP) - The European Court of Justice struck down in a landmark ruling Tuesday a decision by EU finance ministers that had frozen deficit sanctions against France and Germany.

The court said the ministers had gone too far in fixing rules for resuming a so-called excessive deficit procedure, but said that they were within their rights in ignoring a recommendation by the European Commission.

Different parties to the dispute interpreted the ruling in various ways.

Commission president Romano Prodi said the decision confirmed the pact's role, Germany hailed perceived flexibility, France said the ruling did not put its budget policy in question, and the Dutch welcomed the clarification.

The German Bundesbank urged the commission to "reactivate" the pact in its current form, saying that no changes were needed.

The court annulled a November 2003 decision by the EU council of ministers that had suspended excessive deficit measures against Paris and Berlin.

However, the court also acknowledged that ministers had some discretion in applying the rules.

The decision came after 18 months of acrid debate over whether to make the pact flexible in light of persistent economic weakness that has stretched the budgets of key EU members.

The union's council of ministers, ignoring a EU commission recommendation to pursue France and Germany for soaring public deficits, had driven a wedge into the stability pact.

But on Tuesday the court said in a statement: "The council cannot depart from the rules laid down by the treaty or those which it set for itself in Regulation No 1467/97.

"The court accordingly annulled the council's conclusions of 25 November 2003".

It nonetheless added that EU ministers were within their rights to reject the commission's recommendation and suspend the procedure because a majority did not favor pressing Paris and Berlin on the issue.

Prodi declared: "The commission welcomes the ruling by the European Court of Justice as it confirms the essential role of the Stability and Growth Pact regulations in the (system of) European budgetary surveillance."

Germany welcomed the ruling with a statement by finance ministry spokesman Joerg Mueller that said: "There is no automatism in the deficit procedures. In fact, the council has room to make decisions and the council made use of that room for manoeuvre."

French Prime Minister Jean-Pierre Raffarin's office said the decision "does not put in question French budget policies aimed at meeting European criteria with reforms, resolute control of spending and a policy for growth".

Finance Minister Nicolas Sarkozy added that it reinforced his determination to "control public spending to reduce the deficits".

In the Netherlands, which currently holds the rotating EU presidency and which steadfastly defended the pact's rules, the finance ministry said: "We find positive and good that the ruling brings clarification", a view later repeated in a statement by EU finance ministers.

Germany and France, the eurozone's two biggest economies, had been singled out for repeatedly breaching the stability pact's deficit ceiling, fixed at three percent of gross domestic product.

Since then Italy has come close to being slapped with a similar procedure.

The council of ministers will now have to reconsider the case for tighter budgetary measures against Paris and Berlin, but against a new background of possible compromise or reforms the commission could propose in early September.

German spokesman Mueller said the ruling sent a "clear signal to the council of ministers and the EU commission to cooperate in issues regarding the application of the stability and growth pact", and analysts agreed.

Bank of America economist Holger Schmieding said: "The verdict is only directed against the way which finance ministers have chosen to deal with the problem: ministers cannot simply suspend the pact ad hoc; they have to respect the rules."

In essence, the verdict was a plea by the court for ministers and the commission to agree on an interpretation of the pact, Schmieding opined.

Meanwhile, the commission has mooted possible ways of reforming the pact, including longer periods between stages within the excessive deficit procedure to make it operate more smoothly

"The experience of the last five years has shown that in certain cases at least the rules have perhaps been too stringent and have reduced our room for manoeuvre," Economic and Monetary Affairs Commissioner Joaquin Almunia said on June 24.




Subject: French news



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