Brussels, 15/07/2003 (Agence Europe) - The Ministers of the Economy and Finance of the euro zone improvised a long debate on Monday evening on how to interpret the Stability and Growth Pact, after the remarks made by French President Jacques Chirac in favour of making this instrument temporarily more flexible. According to some sources, the Italian Presidency even proposed that Eurogroup, which finally refused, should adopt a short declaration to take note of Mr Chirac's declarations and to conclude that the pact is sufficiently flexible to counter the currently difficult economic situation.
"We consider that the means for application of the Stability and Growth Pact are sufficiently flexible", Eurogroup President Giulio Tremonti declared, concluding the debate on budgetary developments in the euro zone. In response to questions put by reporters on the possible proposals for amending the pact, Mr Tremonti replied: "pacta sunt servanda" (the agreements are there to be complied with). "Even in the current economic situation, the Stability and Growth Pact is a sufficiently flexible framework to support growth", Commissioner Pedro Solbes added. For his part, he maintained that the "Eurogroup has not discussed the declaration of a Head of State", admitting paradoxically that a debate on the pact had taken place (although it was not on the initial agenda). Mr Solbes added that the French minister for the Economy, Francis Mer, had stressed that growth was an essential element. "According to Mr Mer, the system of the pact must strike a correct balance between stability and growth because he considers that growth is the essential element to be achieved", the Commissioner said.
With regards budgetary developments, Mr Solbes pointed out that the public deficit in the euro zone in 2003 should reach a percentage point more than what was foreseen in the stability programmes, that is 2.8% of GDP, despite the effort made by Member States. Mr Solbes explained that German Finance Minister Hans Eichel told his counterparts he planned to reduce his country's deficit to below the 3% of GDP mark in 2004. Mr Eichel, however, did not apparently explain how he plans to finance the fall in tax receipts. "For now, the veil has not been lifted", Mr Solbes said, adding that the German minister "has not yet found a solution".
Some ministers react strongly to Mr Chirac's remarks
Mr Chirac has put Eurogroup in a tricky position. Just before the meeting, the first reactions were somewhat negative, mainly on the part of Spain, Greece, Belgium and the Netherlands. Mr Eichel, too, did not really support his French counterpart and told the press that the pact is adjusted to current requirements. "We do not need discussion to relax or amend the rules of the pact. The Finance Ministers know how to apply it reasonably", he assured. Mr Solbes repeated that the stability pact "does not need to be changed". Dutch national Gerrit Zalm was more severe saying that "France has already obtained a provisional two-year suspension of the pact" postponing the goal of a return to balance in its public accounts. Greek Minister Nicos Christodoulakis felt there was not sufficient flexibility in the pact to take account of the ups and downs of the economic cycle. Mr Mer defended Mr Chirac's point of view, explaining that France would "try, in the spirit of the pact, to restore maximum growth". He added: "We are almost afraid that there is too much stability with prices going down in some countries, and we are all aware that there is not enough growth". According to Mr Mer, "Mr Chirac confirmed that stability was imperative but that one should not forget growth".
Debate on pact could be revived in the autumn
Mr Chirac's speech surprised the Ministers of the Economy and Finance who, until then, had done everything they could to prevent the debate from being started too soon. According to some sources, the subject could be brought up again in the autumn once Member States have informed the Commission of estimates for 2003 as well as forecasts for next year's budget. It will be possible to see whether France and Germany record deficits greater than 3% of GDP in 2004 for the third year running (which would mean that the Commission would have to initiate a procedure for imposing fines on these Member States). Also in October, the Ecofin Council is expected to give its stand on measures that may give concrete substance to the ambitious strategy for relaunching the economy.
Italian Foreign Minister Franco Frattini said at the weekend in Rome that Italy would put the dossier on the table of the Finance Ministers without delay. He mainly cited the possibility of not including investment in defence, research and development and technology when calculating the deficit. This hypothesis, which has never explicitly been supported by Messrs Mer and Chirac, had already been evoked especially by Defence Minister Michèle Alliot-Marie.