Strasbourg, 04/10/2001 (Agence Europe) - In statements about the Stability and Growth Pact and the ECOFIN Council in Liège made in Wednesday afternoon's plenary session, the Council Presidency and the Commission stuck to the Council's interpretation of the application of the Stability and Growth Pact (confirmed by the extraordinary European Council of 21 September) in a period of economic slowdown. At MEP level, however, the usual divisions emerged between the supporters of a very strict implementation of the Pact and those who want a more flexible approach.
Annemie Neyts, who was representing the Belgian Presidency instead of he President of the ECOFIN Council Didier Reynders, mentioned that the Brussels Summit had reiterated its commitment to respect the framework, rules and full application of the Pact, but she acknowledged that that did not mean that the budgetary balances should be considered as having been defined in a rigid manner. Rather than taking a purely nominal approach, it would be necessary to take corrections into account for conjectural variations. The Secretary of State for European Affairs added that this principle is accepted without question in periods of high economic growth and the question to be answered now is whether taking such cyclical variations into account can be done symmetrically in a period of low growth, or even recession. She went on to explain that the Presidency was convinced that this should be done since in a less favourable economic climate, the balances taken into consideration in the Stability and Growth Pact also have to be corrected to reflect conjectural variations. Nominal balances can therefore be affected by a deterioration in the economy, but they can only fluctuate in line with changes in the economy. In such circumstances, a pro-cyclical policy should also be avoided and it is therefore important not to compensate for a fall in income by an equivalent fall in expenditure. Ms Neyts pointed out to the MEPs that she had carefully "weighed up every word", and summed up by noting that in order to have a correct analysis of budgetary positions, cyclical corrections should be small. She stressed that the issue of updating high-performance calculation methods (for the gap between production and potential growth) figured on the Belgian Presidency's agenda, and that these methods should be used in Stability Pacts in the future.
Commissioner Pedro Solbes confirmed that the Stability Pact was a suitable framework for budgetary policy, in both good periods and lean. The automatic stabilisers will have a bigger role to play if the economic slowdown is worse than expected, he admitted, but repeated that the option of making use of this instrument would depend on the situation in each Member State, and that Member States that were closer to budgetary equilibrium would have greater room for manoeuvre.
The Socialist group said that they could not accept the draft Resolution from the EPP-ED and ELDR groups, the German Social Democrat Karl von Wogau immediately pointed out, asking his colleagues, we say that the Pact has to be maintained and fully applied - what objections could there be to that? Mr von Wogau wanted to avoid ideological disputes, but the Luxembourg Socialist Robert Goebbels criticised him for giving a "theological" interpretation of the problem. The former Luxembourg Economics Minister retorted that the important issue today was heading off recession, but Mr von Wogau wants us to wait for six months to "note that we are in recession". Mr Goebbels argued that they were faced with an external shock and had the duty to react. José Garcia Margallo (Partido Popular, Spain) protested that they should not claim that the left wanted growth, but not the right, because everyone wanted growth, adding that faced with a crisis of confidence, it was important to avoid sending out "bad signals" that ran the risk of causing a hike in inflation. The Dutch Christian Democrat Karla Peijs responded to the criticisms levelled at the European Central Bank by saying that there was a link between budgetary policy and interest rate policy and if Member States had applied the necessary structural reforms in time, the ECB would have been able to apply a more flexible policy. The British Liberal Democrat Christopher Huhne insisted on respecting the spirit and the letter of the Stability Pact, adding that the eleven Member States that have sustainable budgetary positions had the right to use automatic stabilisers. We should agree a measure of underlying budget balance, independent of conjectural phenomena, argued Mr Huhne.
The German Social Democrat Christa Randzio-Plath, President of the Economic and Monetary Affairs Committee, called for the Member States' Stability Programmes to be updated in order to check whether the data had significantly changed. She emphasised that stability was not just economic, but also social.
The very articulate Philippe V. Herzog (United European Left, France) slammed the dogmatism and inertia at the heart of economic policy in the EU, an inertia that is largely explained by the fundamentalism of the adversaries to public intervention and was also due to the weakness of European Social Democratic ideas. He asserted that the debate must not be restricted to Stability Pact fundamentalists versus flexibilists, and suggested that MPs and MEPs call for a relaunch of European economies and send a message to the Ghent Summit and the Commission to this effect; for a conjectural action fund to be set up; for the Stability Pact to be subjected to a root and branch reform because it has not been changed since 1992, but the world has changed in the meantime and the euro is here. Mr Herzog had a "new Pact" in mind, based on common efficiency criteria for taxation and public spending; and for the commitment to establish a macro-economic competence for the Union to be incorporated in the Laeken Declaration. Belgian Green Pierre Jonckheer also raised the issue of taxation, particularly the EU's work on combating money-laundering for terrorist purposes, wanting the OECD's FATF recommendations to be made binding (FATF = Financial Action Task Force on Money Laundering). He said he was concerned at several Member States' tendency to structurally cut public income by cutting taxes, since this policy risked causing a structural fall in public spending or an unfair distribution of public spending.
As usual, William Abitbol (Europe of Democracies and Diversities) berated the ECB, describing it as behaving like old people scared of European monetary policy. He decreed that the Stability Pact was dead, but it was the European Central Bank and not New York that had killed it. He singled out the ECB's legendary forecasting errors for particular criticism, amazed at Member States' docility in the face of the ECB's unwillingness to frontload with euros. The EU is not worthy of the powers it wants to remove from sovereign states, he went on. With less sarcasm but just as much force, Ireland's Liam Hyland (Union for Europe of the Nations) lambasted those who want to rush towards a federal Europe, stressing that room for domestic political choices had to be left. Benedetto V. Della Vedova (Lista Bonino) called for the Stability Pact to be respected, hoping that the 11 September crisis would not be used as an alibi for returning to the "deficit spending" of the past. He took advantage of the opportunity to again call for the adoption of a non-prohibitionist policy on drugs in order to nip drugs trafficking in the bud, adding that it was also used to finance networks of terrorists.
By a slight majority reflecting the divisions among MEPs (253 to 237 with 7 abstentions), the plenary finally adopted a resolution by the EPP-ED, Liberal, Europe of Democracies and Diversities and the Italian Radicals calling on the Council to reaffirm that it is committed to keeping the current form of the Stability Pact and continuing to fully apply its principles. The resolution stresses that countries that have reached budgetary equilibrium or budget surplus can let the stabilisers act to their full extent, while other countries have less room to manoeuvre. It calls on Member States to set their budgets according to "reasonable" growth forecasts and not make use of measures having an "immediate effect" to artificially cut their budget deficits. The EP calls on the Commission and the Council to treat small and large Member States equally when assessing the implementation of the national stability programmes (alluding to the Irish affair, Ed), believing that in the future it would be a good idea for the ECB, Commission and the Council to agree on a common definition of the "structural budget balance", which could be used as an additional analytical tool and help strengthen discipline. In terms of money laundering, Parliament wanted a working group to be set up, made up of Member State and candidate country experts, which would draw up a list of urgent measures to be taken to effectively dry up international terrorism's financial resources on the European continent.