Dutch lose EU budget battle

25 November 2003

AMSTERDAM — Dutch Finance Minister Gerrit Zalm came off second best in the battle over European Union monetary policy on Monday night as Germany and France escaped fines for continued breaches of budget deficit regulations.

Zalm demanded the possibility be held open to impose fines, but a small majority of EU member states voted against his proposal. Only Spain, Finland and Austria backed the Dutch stance during a marathon meeting of finance ministers in Brussels.

Germany and France argued that budget cuts would hurt Europe’s economic recovery, but the European Commission was not swayed and remains dissatisfied with the outcome of the talks. The EC is now considering taking the matter to court, news service ANP reported.

The ministers met to decide whether the threat of fines could be used to convince Germany and France to reduce their budget deficits. But both countries, especially Germany, dismissed the penalties and instead said it wanted to take “voluntary” measures.

The failure of the motion to gain majority EU support means that the possibility of imposing fines running into the billions of euros — which was written into the Stability Pact agreed on to solidify the euro — has been definitively rejected.

The deal must still be officially agreed on when the 15 EU ministers meet again on Tuesday, but the two-third majority required is expected to be achieved. Essentially, it calls for finance ministers to adapt their budgets to the prevailing economic conditions, overriding the stability pact that Germany and France claim is too restrictive.

The stability pact set out to ensure EU nations kept their budget deficits under 3 percent of Gross Domestic Product (GDP) to help maintain the stability of the new currency and stave off high interest rates. On paper, countries that breach the pact can be fined billions of euros if they ignore earlier recommendations.

According to the deal, Germany must now cut its deficit by 0.6 percent of GDP next year and 0.5 percent in 2005, while France must achieve 0.77 percent and 0.6 percent cuts. But the cuts might not bring their deficits under 3 percent and in each case, economic growth must remain solid, BBC reported.

After the talks broke up, Economic and Monetary Affairs Commissioner Pedro Solbes said “the commission deeply regrets that these proposals are not following the spirit and the rules”. A legal battle in the European Appeals Court in Luxemburg has not been ruled out.

The Netherlands is a staunch supporter of the stability pact and will cut a massive EUR 17 billion from its budget between now and 2007. Next year’s deficit of 2.3 percent is expected to be reduced to 0.5 percent in 2007.

Zalm places strong emphasis on reducing the budget deficit and has urged EU member states to respect the stability pact’s limits. Prior to the start of Monday’s meeting, he had expected to gain majority support for his stance.

“There is a large group which says that we must enforce the procedures,” he said.

Despite recognising the possibility that he might fail to gain majority support, Zalm also said there appeared to be sufficient support following diplomatic negotiations he and Prime Minister Jan Peter Balkenende had recently engaged in.

But the initial indication of support from Ireland and Belgium was withdrawn as the talks progressed on Monday night and the Spanish, Finnish and Austrian support for the Dutch proposal was insufficient to give it majority backing.

Subject: Dutch news