Brussels, 12/02/2002 (Agence Europe) - After many hours of discussions, the economy and finance ministers of the Eurogroup, meeting under the chairmanship of Rodrigo Rato Monday evening, found a "unanimous" common position over Germany and Portugal's excessive public deficits. This compromise, that guarantees the respect of the provisions of the Stability and Growth Pact while enabling, especially Germany, to come out with its head held high from this political tussle, buries the early warning procedure recommended by the European Commission, but with an explanatory declaration from the Council comprising guarantees by the countries concerned: their public deficits will not reach the fateful limit of 3% of the GDP and the goal of reaching a position close to a balance in their public finances will not be postponed beyond 2004. This agreement on the examination of the German and Portuguese stability programmes should be formally backed by the EcoFin Council as a whole on Tuesday (see above).
Mr. Rato summarised the compromise to the press in four points:
1) while putting an end to the "early warning" procedure, the Council "acknowledges that this mechanism", advisedly used by the Commission, "is an essential part of the Stability and Growth Pact";
2) Germany and Portugal have formally undertaken to respect the 3% limit set for public deficits in the Stability and Growth Pact and to ensure a robust pursuit of their budgetary policies, and this at all levels of public administration. In addition, they must scrupulously follow their budgetary trajectories in 2002, i.e., avoid taking any "discretionary decision in spending that could place budgetary balance back into question, and allocate any increase in revenue to reducing the public debt" (in other words, they must bring the automatic stabilisers into play in case of additional revenue or economic recovery, Rato explained);
3) these two countries have undertaken to attain a situation close to a balance for their national budgets by 2004, "on condition of continued economic growth" (otherwise, Germany will have to make additional efforts);
4) the German Government "will deploy all necessary efforts" among regional authorities to have these objectives respected.
As conclusion, according to this statement, ministers take note of the commitments made by Berlin and Lisbon and consider them sufficient to meet the concerns expressed by the Commission in its recommendation.
For Solbes, the early warning procedure remains applicable and
the credibility of the Stability Pact is preserved
In a statement, Mr. Solbes, for his part, said: "We managed to reach a good compromise and have taken note of the decision (…). The Commission welcomes the undertakings made by the German and Portuguese governments which, on the whole, meet the concerns expressed in its recommendation in the framework of the early warning procedure. The Commission considers that the use of this procedure remains applicable and that it will be triggered again if necessary". In answer to a question, Mr. Solbes considered that the procedure followed by the Council was not identical to the one proposed by the Commission, but that it nevertheless conformed to the Pact's provisions and that it responded in substance to the Commission's document. Thus, "the Pact's credibility remains preserved", he said.
For his part, Mr. Rato stressed the "obligation of Member States not to have excessive deficits and to react should that be the case", and, while ruling out a modification to the Stability Pact, he explained that the undertakings made by Germany and Portugal "only serve to confirm the Pact's philosophy". Member States "are held by the Pact to adopt budgetary policies enabling the automatic stabilisers to kick in to the full when the economic cycle is favourable, so as to allow budgets to tend towards a balance. Yet, it is an undertaking respected by both countries in question. The substance of the concerns expressed by the Commission will be met if the Council accepts the solution we have opted for", Rato summarised, concluding: "decisions regarding procedure are a way of attaining an end".
Consensual solution after differences between the twelve
This "consensual solution", that Germany and the Presidency were desperately hoping for at the beginning of the meeting of the Eurogroup, was preceded by a battle between those countries in favour and those against initiating the early warning procedure. According to unofficial sources after three hours of talks, it became clear that four countries (Austria, Finland, the Netherlands and, to a lesser extent, Belgium) supported the Commission's proposal, while eight felt the launch of the procedure was unjustified. Germany's aim was not to battle to avoid the warning but to do all it could to find a consensual solution, said German finance minister Hans Eichel when he arrived. Asked about the prospects of reaching equilibrium in public finance in 2004 (as Germany had previously pledged to do), Mr Eichel said his country would do all it could to achieve that, but warned that stronger growth would be necessary than had been forecast in the most pessimistic scenarios for the German economy (which do not predict a return to equilibrium until 2006, he pointed out). The Austrian finance minister Karl-Heinz Grasser clearly came out in favour of an early warning being sent to Germany, whose public deficit was hovering close to the 3% level set out in the Stability and Growth Pact that had to be stuck to. Mr Grasser hoped that as many other countries as possible would follow the Commission's recommendations. He said that if a warning was not decided upon, it would create big problems for the future because they had pledged to maintain very tight public finances. The Belgian finance minister Didier Reynders' sole concern was for the Pact's mechanisms to be efficiently applied, along with the series of procedures associated with the Pact, stressing that the important thing was to stick to the Pact. Before the meeting began, the Luxembourg economics minister Henri Grethen said that the early warning mechanism was "perverted", since telling someone that they're in a difficult situation but are doing things the way they should is no solution. Mr Solbes laconically said that we have made our recommendations and it's now for the Council to decide.