Luxembourg, 04/06/2002 (Agence Europe) - On Monday evening in Luxembourg, Economy and Finance Ministers analysed the most recent developments in the European and international economies, as well as issues raised by France and Portugal, that currently stand in the way of ECOFIN adopting the draft recommendations on the Economic Policy Guidelines (BEPG) for 2002 (see below for information on ECOFIN Council debate on the subject). Chaired by the Spanish Minister of the Economy, Rodrigo Rato, EUROGROUP, also discussed the way in which this currently informal body might function in the enlarged EU, in the knowledge that a decision on this subject could be reached by Heads of States and Governments at the European Summit of Seville.
Mr Rato declared during a press conference that he hoped that the proposals on the BEPG would be adopted before the European Council in Seville, at the ECOFIN Council, which will be meeting up to specifically discuss this issue. Mr Rato indicated that France, which would have re-asserted its wish of respecting the Growth and Stability Pact provisions, wanted to await the result of its audit on public finance (revenue and expenditure) before adopting the BEPG. In response to questions from journalists, Mr Rato denied that France had political motives for putting off this decision (and not only technical reasons), whereas the results of the audit would not be known before the European Council of Seville.
For all of these reasons, the French government is not in a position of accepting a return to balance in its public finances by 2004, the date worked out in the BEPG and the proposals on France. The Portuguese government does not understand why there is a difference between the recommendations addressed to it - reaching a balance by 2004 - and those on Germany - a situation close to balance by 2004 - given that Portugal and Germany had been treated in the same way, when the ECOFIN Council finally decided to not give them a warning on the state of their finances. Outside of the Euro-zone, the United Kingdom has a reservation given its subtle interpretation of the Stability Pact. It would have liked the Commission to have taken more into account the fact that even if its deficit is 1% of GDP, its public debt is well below the other EU countries (less than 40%) and therefore believes that even with a 1% deficit, it has respected the Stability Pact.
EUROGROUP's future: After studying the report published by the Economic and Finance Committee (EFC), Economic and Finance Ministers from the twelve ,exchanged views on how EUROGROUP would work in an enlarged European Union. Mr Rato indicated that the ECF is analysing the first proposal of the Commission on the strengthening of EUROGROUP's role when the ECOFIN Council has 25 members, in view of a decision at the European Council in spring 2003 in Greece.
Diplomatic sources are of the opinion that those supporting a more formal institutional role for EUROGROUP, will have their way, as it appears "unthinkable" that EUROGROUP would be unable to take part in decision-making, when the majority of countries belonging to the ECOFIN Council don't belong to the Euro-zone. This same diplomatic source claimed that there were, however, countries that even belonged to the Euro-zone who were wary about making EUROGROUP a formal body. Ireland believes that it is the frankness of informal discussion that has enabled the organisation to function efficiently over the last three years. Other countries share another worry: how management of the Community's currency is carried out, while political decisions remain in the national arena. This source added that "a place for subsidiarity" had to be found.
A tour of the general economic horizon: Mr Rato indicated to the press that the Commission, the ECB and the Economic and Financial Committee had again confirmed the upturn in European economic growth, which is based primarily on external demand. Certain Ministers noted that the economic upturn was panning out "without any short-term inflationary pressures", particularly because food price rises (especially fresh fruit and vegetables) are beginning to be re-absorbed and the Euro is bearing up well against other international currencies (which reduces the cost of raw materials). Commissioner Pedro Solbes explained that the "slow" growth of the economy in the Euro-zone is estimated to be around 0.2% between January and March of this year and that there were reasons to be optimistic about the rest of the year. He repeated that the European upturn would be achieved with the active return on stocks, but that difficulties still remained in the investment and internal consumer domains.
As for the situation in the USA, EUROGROUP, showed that the outside of the modest upturn in economic activity, there were still risks linked to the large deficits of these counties (external and budgetary), explained Mr Rato. Mr Solbes commented that the US economy was affected by: an increasing number of bankruptcies; a high level of company debt, a stock market that is unhealthy. As well as these worries, Mr Solbes mentioned anxiety about the company management system. The Commissioner explained that in Japan, the upturn had been mainly export-led and not led by internal demand. Mr Solbes also pointed to the weaknesses of the financial system, although the situation had improved.