Jean-Claude Juncker is close to the first of the three objectives he set himself for the six months of the Luxembourg Presidency of the Council: that on the Stability Pact. The revision of its functioning could be a done deal early next week, within the Euro Group first of all, then in the Ecofin Council, although the definitive “yes” will only be given two weeks later at the Spring Summit. This first success will help to smooth the way for the two others, one which relates to the mid-term revision of the Lisbon Strategy and (the trickier) political agreement on the financial perspectives 2007/2013.
Three reasons to be cheerful. How does one justify this optimism about the Pact? Three reasons. The first concerns procedures. Mr Juncker (who chairs the Euro Group, the Ecofin Council and the Summit, all at once) announced that the high-level technical work (Economic and Financial Committee) is all done. It is he who will send his fellow ministers a draft resolution, penned by him, to put to the Heads of Government (see our bulletin of 18 February, page 7), and next week's debate will take place solely at ministerial level. Mr Juncker feels that progress made on 16 (Euro Group) and 17 February (Ecofin Council) was sufficient to sketch out the general outline of the definitive resolution. How elegantly these things are said! The second reason for optimism is political and psychological in nature: the Finance Ministers prefer to agree amongst themselves and send a consensual text to the Summit, rather than to leave such and such a point open for a debate between the heads of government. They feel that they have a better understanding of the dossier and all of its finer points, and they are aware that it will be up to them later to manage and apply the new-look Pact. Two good reasons to agree. Especially as, from their side, the heads of government would much rather avoid those technical details which bore them so (and which they do not, indeed, always fully get to grips with).
What's already in the bag. The third reason relates to the state of progress with the dossier. Many observers continue to emphasise the few remaining difficulties (and, sometimes, milk them for all they're worth, in keeping with the old journalistic rule that a disagreement is always more seductive than an agreement), by neglecting to state that the fundamental issues have all been resolved. To start with, people were talking about changing the text of the Pact itself, not just how it is applied, the ceiling of 3% for deficits was to be done away with, certain categories of budgetary expenditure removed from the calculation (and each with its national list). Here's how it now lines up: a) the text of the Pact stays as it is, because it guarantees the stability and international image of the euro; b) the ceiling of 3% remains; c) no category of expenditure can be removed, magicked away as if it had never existed. Therefore, the Pact remains the same; but, at the same time, everything changes.
The very fact that the 3% deficit has been exceeded will not automatically trigger proceedings; if the excess is small, temporary and exceptional, if the State in question comes closer to the correct rate, proceedings will not be started. Furthermore, and more to the point, the nature of expenditure will take on an essential importance: those implementing reforms called for by the Lisbon Strategy, those which lead to an immediate deficit but have positive budgetary effects in the longer term (like several categories of investment), those going towards the EU budget, etc, will be looked on with a positive eye. Economic slowdown or stagnation can justify these excesses, without having to wait for a full-blown recession. The “preventive” part will take on more importance: thus, in a period of growth, the Member States will have to bring their debt down (but without heavy obligations in terms of figures) and build up reserves. Compare these to what Mr Juncker announced at the beginning of the year (see this column of 18 January) and judge for yourself.
All of this was done in full respect of the institutional balance. Mr Juncker has rejected the tendency of various ministers to scale down the Commission's role and to concentrate power in the hands of the Council: the Commission will hold onto its right of initiative to open proceedings and establish reports, as the Council can modify tests in line with the Court of Justice ruling.
Given these fundamental elements already accomplished, the relative importance of the outstanding questions is, if not negligible, I would say secondary. The very spirit of the Pact has been modified. Instead of a monitoring instrument, it will be an economic policy instrument at the service of the Lisbon Strategy, justifying its title “Stability and Growth Pact”, whilst keeping its essential aim: guaranteeing the stability of the euro. (F.R.)