Madrid, 21/06/2002 (Agence Europe) - After six hours of difficult negotiations with France (various problems raised by the other four countries were rapidly resolved, see EUROPE yesterday p 7), Economic and Finance Ministers agreed in the early hours of Friday morning to adopt by unanimity, the recommendations on the Broad Economic Policy Guidelines for 2002. The compromise is satisfactory to Member States and the European Commission: 2004 remains the date for a return to a level close to public financial balance in countries where there is a deficit, while allowing France to put the deadline back in case of poor economic growth. The BEPG paper, destined to set out the economic policies of Member States over the next few years will be sent to Heads of State and Governments meeting in Seville for the European Council and who will be expected to ratify the conclusions by unanimity.
ECOFIN President, Rodrigo Rato, explained that the French government was committed to respecting the Stability and Growth pact. He also pointed out that the Council's commitment was very important in calling for the budgets of Member States (France, Italy, Belgium and Portugal) to be "close to balance" in 2004. Commissioner Pedro Solbes acknowledged that the compromise was not entirely satisfactory but admitted that the essential part of the recommendations had been kept.
The new French Prime Minister, Francis Mer, had been called on to bring his accounts "close to a balanced position" by 2004 (as opposed to "balance" described in the original version) but managed to obtain the proviso inserted whereby this would not apply if economic growth remained less than 3% in 2003 and 2004. According to a Commission spokesman, the French declaration on growth does not change the "spirit" of the BEPG text, given that all recommendations addressed to Member States take into account the "macro-economic hypothesis" of growth, and growth in France was still growing by 3%. Mr Solbes explained that the budget of a country is "close to balance" when it does not exceed 0.5% of GDP. He added that this was an "indicative" figure that could be applied on a case by case basis.
The definitive versions of three paragraphs posed problems for France. The most controversial is the following: France makes a commitment that its deficit does not exceed 3% of GDP in 2002. In order to reach this objective it will need to monitor budgetary developments very closely and ensure that any tax cuts will not impact on the deficit (that they would have a neutral impact in this area); in 2003, France will be expected to follow a policy that will allow it to obtain a significant reduction in the deficit in order to achieve a situation close to balance in 2004; France is also expected "without delay" to begin a policy of widespread structural reforms in an effort to increase its growth and reduce (in the medium term) the level of public expenditure. France is also called on "without delay" to reform its pension system to ensure its lasting viability in the context of an ageing population.
For Mr Solbes, the compromise "introduces elements of uncertainty"
Commissioner Pedro Solbes is said to be satisfied with the results obtained especially on the fundamental point of reaching a situation close to balance or surplus for all countries by 2004. This is in keeping with the commitments made at the Barcelona Summit, he added. The Commissioner believes that the changes to the original proposals have introduced some elements of uncertainty, although the essential recommendations remains unchanged. Mr Solbes explained that they still had to put the BEPG text into practice and then evaluate the way in which the commitments for guaranteeing stability in Europe were respected. He also believed that more attention needed to focus on the objectives of the document, which were essential for increasing growth potential in Europe. He was also keen to learn a lesson from the lessons on French anxieties in adopting the BEPG: "national economic policies must be coherent in relation to the obligations made at a European level", he explained.
In a reply to a question put to him by a journalist, Mr Solbes confirmed that according to the recommendations contained in the BEPG, tax cuts promised by Jacques Chirac should be accompanied by a reduction in public spending.
Mr Mer considers balance will be put off if growth is not forthcoming
At the end of the ECOFIN Council in Madrid, Francis Mer declared that if growth was no more than 3% in 2003 and 2004, France would be unable to reach budgetary balance in its public spending in 2004. Mr Mer explained that everybody accepted the idea that if growth fell below expectations, then more time would be needed to approach a balanced position. France would need to go further than other countries to reduce its deficits, he added.
He admitted in fact that the public deficit of France is significantly higher than that envisaged, and made reference to the result, expected on 27 June, of the audit on public accounts 2002 (we would point out that French Budget Minister Alain Lambert said the public deficit could reach 2.5% of GDP this year, while initial forecasts gave a figure of 1.9%).
German Minister Hans Eichel is pleased with the agreement
Speaking at a press conference, German Finance Minister Hans Eichel said he was pleased with the compromise reached and felt that the budgetary objective set by France could be achieved. "There cannot be a budgetary forecast that is not, for example, linked to economic growth expectations. It is an ambitious aim, but an achievable aim and we were all assured of that last night", he declared.