Brussels, 12/02/2002 (Agence Europe) - European Finance and Economy Ministers, meeting in the EcoFin Council on Tuesday, unanimously approved the compromise solution found in the Eurogroup the day before on the German and Portuguese public deficits. Other than its opinion on the stability or convergence programmes for eight countries (Germany, Portugal, France, Italy, Ireland, the United Kingdom and Greece), the Council adopted two declarations setting out the different undertakings made by Germany and Portugal to remedy their public deficits and stick to their objective of reaching a balance in their national budgets in 2004. These guarantees are regarded as being sufficiently important for the early warning procedures, recommended by the Commission, to be closed. The Commission also adopted a declaration in which it welcomes the undertakings made by these countries, "which respond to the substance of the concerns expressed in the Commission's recommendation in favour of the early warning".
The main remarks made in the opinion of the EcoFin Council on the German programme are as follows: - the Council notes that the estimated deficit for 2001 (2.6 of GDP) is much higher than predicted in the updated programme of October 2000 (1.%) and admits that this important nominal difference may be explained by the downturn in growth (down, in 2001, by more than two points in relation to estimates); - the federal government executed the budget in accordance with what had been foreseen, but the deficit at other levels of the administration (social security) is higher than expected; - should growth turn out to be weaker than predicted, "it cannot be ruled out that the deficit of the public administration in 2002 should approach, more so than in 2001, the reference value of 3% of GDP; - healthy public finances should be sustained by implementation of structural reforms aimed at improving the growth potential, especially concerning the labour market and the social security and social services schemes. EUROPE will return tomorrow to the opinions on the stability or convergence programmes of the other seven countries.
The balance in the German public finances in 2004 does not seem likely, Eichel hints
Speaking to the press, German Minister Hans Eichel demonstrated that he had pulled it off by rallying his partners around the position that had been his own for weeks, i.e. the will to find a "consensual solution" (avoiding a vote that would have brought to light differences between the Fifteen), putting an end "to an unfruitful procedural dispute". Nor did Mr. Eichel hesitate in declaring that he had always said that his country would manage to balance its public accounts in 2004 if, and only if, growth was stepped up. He even hinted that this goal could only be attained if growth reached 2.5% of GDP on average over the period 2003-2005 as a whole (it was 0.6% in 2001 and estimated at 1.25% in 2002). Regarding possible "discretionary measures" to take to reach a balance in 2004, as mentioned in the Council declaration, he stipulated that it was especially a question of allocating the "fruits of growth" to reducing the deficit. In a draft Council opinion drawn up by the experts of the Economic and Financial Committee (which recommended triggering the early warning procedure due to an excessive public deficit), the German authorities recognised that the budgetary balance would only be attained in 2006 and not 2004, or two years after the year provided for by the Council in its 2001 opinion and the major economic guidelines of the same year. In addition, this text referred to a deficit in public finances remaining "far from the balance and not offering sufficient margin to avoid crossing the 3% threshold set in the Treaty, were the situation to further deteriorate."
Belgian Minister of the Economy and Finance, Didier Reynders drew the following lessons from the work: - it is of foremost importance not to place into question the date set for managing a situation close to a balance in public finances (otherwise, "it is an open door for budgets to slide off track", he said); - "The Commission did indeed provide its early warning and it had its effect, both on markets and on the Council", the latter having secured guarantees from Germany and Portugal, contributing to the respect of Pact's undertakings; - the Commission's declaration preserves what is important, by recalling the way undertakings made would be closely monitored (the Commission's spring forecasts will allow it to sound out developments in Germany and Portugal's budgetary policies). Mr. Reynders acknowledged that the chosen procedure was not "ideal", but it would have been worse to vainly attempt to reach agreement on the Commission's text to finally "reach deadlock".
Likewise for the Austrian minister Karl-Heinz Grasser, the solution put forward by the Council is a pale compromise since it make it possible to stick to the aim of achieving equilibrium in Germany's public finances in 2004 rather than 2006. He said that the British Chancellor of the Exchequer, Gordon Brown, would have demanded that Germany commit itself to cut its debt levels and would have been successful since a paragraph to this effect was added at the last minute to the declaration adopted by the ECOFIN Council. French finance minister Laurent Fabius (who only attended the meeting in the morning) and whose remarks were repeated by another diplomat, said the agreement was reasonable and responsible. Irish minister Charlie McCreevy said the solution that had been found preserved the interests of the euro, while his UK counterpart Mr Brown said the compromise was a "sensible outcome which took into account the ups and down of economies".