Brussels, 24/11/2003 (Agence Europe) - To avert a damaging stalemate in terms of the Stability Pact's credibility, Giulio Tremonti left no stone unturned in Brussels on Monday evening in order to be able to present an acceptable compromise to Eurogroup over the European Commission's recommendations to France and Germany, whose budget deficits will overshoot the 3% GDP threshold in 2004 for the third year in a row. The presence of the President of the Commission, Romano Prodi, to back up Commissioner Commissaire Pedro Solbes, demonstrates the importance of the meeting for the future of the Stability Pact. An extraordinary meeting of experts on the Economic and Financial Committee was due to be held before the Eurogroup meeting.
Although the decisions will not be formally taken until Tuesday's ECOFIN Council (see below), the Eurogroup meeting is expected to be decisive. The two most likely scenarios at the time we went to press were: (1) an agreement in principle to amend the Commission's recommendations to France and German (where possible with the Commission's assent) by, for example, transferring most of the budget discipline to 2005 rather than 2004. In this case, the situation in the two countries will be covered in the same way, which would have the advantage of calming spirits that threaten to damage the Stability Pact's credibility. If the Council's decisions diverge too widely from the initial recommendations, the Commission may adopt a statement expressing its discontent; (2) adopting recommendations for France and postponing the decision on Germany until 16 December. The problem here is to pass a decision on France that is acceptable t! o Berlin, since treating the countries differently is politically inconceivable. Postponing the decision on both countries seems highly unlikely since France was given a breathing space at the beginning of the month (see EUROPE of 5 November 2003, pp.6 and 7).
Facing a hard line attitude by some countries, like the Netherlands, Austria and Finland, Francis Mer and Hans Eichel have ruled out any additional tightening of the budget in 2004. The Commission is calling on Paris to made a percentage point cut in its structural deficit (rather than a 0.6 percentage point cut, or a EUR 5 billion reduction). Eichel said last week that extra budget cuts would hold back growth and extend the crisis. Mer took a more conciliatory line, noting that France would meet the Maastricht requirements in 2005, meaning a deficit of below 3% GDP. At the Eurogroup meeting, Mer attempted to convince his colleagues of the seriousness of the health system reforms planned for 2004.
At the Commission, President Prodi denounced last week any attempt by the Council of the EU to end the Stability Pact through intergovernmental and extra-institutional agreements. On Friday, Pedro Solbes urged ministers to adopt the recommendations rather than seeking political compromises. There's nothing exceptional in the fact that the Presidency is preparing compromise documents, commented Solbes' spokesperson on Monday, adding that Romano Prodi had in the past attended several Eurogroup meetings (expecially at the time of the presentation of the European Growth Initiative).