Reforms agreed over eurozone budget pact

21 March 2005

AMSTERDAM — Eurozone finance ministers reached a deal on Sunday night on how to reform the rules governing the European single currency and budget deficits. The agreement has ended months of bitter wrangling.

Countries using the euro must still keep their budget deficits under 3 percent of national income, but they will be given more leeway to adjust the budgets.

It means that EU member states may run budget deficits above 3 percent of Gross Domestic Product (GDP) in difficult economic times; but they must then save a greater amount of money in periods of economic growth.

Luxembourg’s prime minster, Jean-Claude Juncker, said the deal did not change the fundamental rules of the EU Stability and Growth Pact, the BBC reported. The pact is designed to maintain the stability of the euro currency.

The accord comes after France, Germany and Italy demanded a less strict interpretation of the rules. Despite objections from smaller nations, Berlin, in particular, has breached budget regulations in recent years.

In addition, Germany and other nations have refused to pay fines for breaching the stability pact. This led to an embarrassing defeat for the Dutch finance minister, Gerrit Zalm, who pleaded in 2003 for the imposition of sanctions.

Besides the reforms, Germany also gained special consideration on Sunday for the money it invests to prop up the former East Germany. Ministers agreed special expenses can be taken into account when it comes to applying the stability pact’s rule of law.

Minister Zalm said the reforms provide for a “good balance” between tighter budgets in times of growth and greater flexibility in periods of economic stagnation. Zalm gave his assent to the deal on Sunday.

Some critics claim that the reforms could lead to sloppy government finances, resulting in higher interest rates. France and Germany argue that the pact was agreed when economic growth was stronger and makes no allowance for more difficult times.

EU leaders are expected to endorse the agreement to ease the pact’s rules at a summit in Brussels on Tuesday and Wednesday.

Subject: Dutch news