Brussels, 17/10/2002 (Agence Europe) - Wednesday evening, Commissioner Pedro Solbes acknowledged that the European Commission would be forced to trigger a procedure against Germany should the country's public deficit exceed 3% of GDP in 2002. German Finance Minister Hans Eichel had just admitted for the first time that his country's public deficit may not remain under the 3% of GDP threshold set by the Stability and Growth Pact. "We shall naturally be confronted with a procedure for excessive deficit", Eichel conceded on television. "It is absolutely in the order of things (…) But I'm optimistic, as the measures we intend taking next year will enable us with certainty to clearly remain below the 3% limit", said Eichel. So far, the German Government had counted on a public deficit of 2.9% of GDP. This forecast, sent in in September, already upwardly reviewed the previous estimate of 2.5%.
Mr. Solbes reacted in a press release: "in the case German government data or the Commission forecasts confirm that the 3% of GDP budget deficit limit is breached in 2002, the Commission has to trigger the excessive deficit procedure of the Stability and Growth Pact. This is also in line with the Eurogroup conclusions of last week in which ministers underlined that the procedures for preventing and correcting excessive deficits must be implemented in a strict and timely manner".
Mr. Solbes, moreover, welcomed the fact that the partners of the coalition in Berlin should have "come quickly to a common understanding on the budgetary strategy for the next years. At first sight, it seems that decisive steps for budgetary consolidation are planned for 2003 and 2004. A significant improvement in the underlying position, starting in 2003 and continued in 2004, is a clear signal that Germany remains committed to the Stability and Growth Pact and its European agreements. The objective to reach a close to balance position in both nominal and cyclically adjusted terms no later than 2006 is also a positive sign", he added.
The Commissioner stipulates that it is only after a full and thorough assessment of the measures that the Commission will give its final opinion on the 2003 budget and the medium term objectives of the German budgetary policy. "Our analysis will focus on the pace and the quality of the budgetary consolidation process. I encourage the German Government to carry out an adjustment effort that is consistent with the growth stimulating structural reforms that are essential to move the German economy to a higher growth path", he said.
According to Prodi, Stability Pact is imperfect but necessary
"The Stability Pact is imperfect, that's true, as we need a more intelligent tool, more flexible too, but you know full well that if we want flexibility and intelligence, we need the authority", says Romano Prodi in an interview published in the French daily "Le Monde" dated Friday. Asked to say if he had that authority, the Commission President replied: "clearly not, nobody has the authority". He then added: "It is not possible to have divergent policies. I am convinced that all Member states will soon want the co-ordination of economic policies". "Today's realism is the Stability Pact. We have made it more intelligent, but if there is no 3% of GDP limit for public deficits, we shall not be able to avoid skidding off track", Prodi also explained. "I know full well that the Stability Pact is stupid, like all decisions that are too rigid. If we want to adjust these, there needs to be unanimity and that doesn't work. It does not suffice to have intelligence, we have it. We also need the power to decide", he insisted. Le Monde pointed out to him that the French and Germans were currently not all that turned towards Europe, and Mr. Prodi replied that Europe needed a strong German and French alliance. "It's not new, but is even truer today than before", he said.
A Commission spokesperson tried to play down the word "stupid", explaining that it had not to be taken out of context and did not point to dissension within the Commission over the Pact, and then added: "flexibility in implementing the Stability Pact - the President said this and repeated it - is the cement of our economic policy".
In that context, Pedro Solbes reacted strongly on Wednesday to the statements of his colleague responsible for trade, Pascal Lamy, who, in an interview published by Il Sole 24 Ore on Tuesday, is alleged to have said that the Stability Pact was an "old" instrument and needed "modernising". "I believe he has an external vision of the Pact", said Solbes, adding: "He knows trade policy much better than I do. He does not have the responsibility of the Pact".