The caution of the Ecofin Council. To say that this week's Economic/Financial Council seemed a bit cautious at the announcement of a European Commission document on how the Stability Pact works it a euphemism. The Ministers made it clear that they're not interested in a Commission initiative, or at least not just now. However, they have frequently complained about the Pact, and several of them have at different times suggested or recommended changes. This gives the impression that the Ministers want to keep this dossier for themselves. After the Commission's appeal to the Court of Justice against the way in which Council applied the Pact, this is not the time for compassion or co-operation. One Minister said we will have to wait for the Court ruling, another that oil would have to be poured on troubled waters. And there is also a tendency to refrain from getting into any partial changes, instead waiting for the time to be right for a wider debate on the Pact itself and its objectives, and thus the global problem of economic governance and the balance of the economic and monetary Union, which Jacques Delors famously described as lame, with one healthy and efficient monetary leg and a missing, or at best inefficient, economic leg. French Minister Francis Mer reckons this might be possible in 2005, or 2006 or 7, according to Luxembourg's Prime Minister, Jean-Claude Juncker (who might be taking into account possible changes in his own European responsibilities between now and then). Ideas are already making the rounds on a radical revision of the Pact, but for later.
In the meantime, analyses and studies are underway, and Commissioner Pedro Solbes confirmed the outlines of the document to be presented by the Commission in late February, i.e.: a) no changes to the Pact as such, just certain parts of the rules on its application; b) a better mix of budgetary discipline with growth considerations; c) to take greater account of the sustainability of public funds (taking account not only of the annual budgetary deficit, but also overall public debt); d) greater emphasis on common European interest.
No surprises here. These guidelines have taken on board comments we haven't heard for months, and the resulting thoughts on: -the possibility of relaxing the 3% rule (absolutely to the letter during periods of economic growth, flexibility at bad times); -greater stringency for Member States whose overall debt remains too high; -greater attention to the repercussions that a country's economic policy may have on that of the others. The principles are simple, the problems start further down the line in their application. Here are a few comments on the Brussels reflections.
1. No changes to the Pact itself. To get into any revision of the Pact would interfere with negotiations on the Constitution and encroach on the Convention's results, and so only the rules on application will be looked at. The "3% rule" (ceiling of annual deficit) would remain valid, with greater flexibility on modalities. But there is another theory that the Convention's results on economic governance of the EU are insufficient, and that this is an opportunity to tighten them up.
2. Flexibility of application. The principle that the application of the Pact should take the economic context into account is broadly shared. In times of growth, the budgetary balance, or even surplus, should be the rule, and reform should be far-reaching. But opinions differ, it seems, on the guidelines to apply in periods of economic slowdown or recession: there is a school of thought that Member States should be allowed to exceed the threshold in such times, but others think the 3% rule should remain inviolable.
3. Calculation of deficit. Some think certain public investment should be left out of the calculation, or assessed to take account of their future impact, notably: research (which helps competitiveness in general), infrastructure (which paves the way for future activity), and even defence (which boosts Europe's weight in the world, and provides work for high-tech industries). Others point out that all deficit should be covered, and all debts paid back.
4. Deficit and overall debt. Some feel that assessment of the annual budgetary deficit cannot be left out of the State's debt, which should even be the main assessment criterion. A country with little debt can get into debt more easily than another with a heavy burden already. The day the UK joins the euro zone, how can it be banned from funding its neglected infrastructure out of the budget, given its very low overall debt?
By the end of February, we should know the Commission's thoughts on all this.
(F.R.)