Brussels, 08/03/2005 (Agence Europe) - A discussion of over nine hours did not allow the finance ministers of the euro zone to come to an agreement on the essential points of Stability and Growth Pact reform, and a final meeting was therefore convened for 20 March, just prior to the European Council. Upon his arrival in Brussels, German Finance Minister Hans Eichel did not seem satisfied with the proposal of compromise tabled by the Luxembourg Presidency and already expected another meeting to be called before the summit on 22 and 23 March. For different reasons, Karl-Heinz Grasser of Austria also felt that the Presidency's text was “progress, but largely in the wrong direction”. The margin of manoeuvre left to the president of the Eurogroup, Jean-Claude Juncker, was still further reduced after the support given by Jacques Chirac to German demands (yesterday's EUROPE, p.8). The intervention by Messrs Chirac and Schröder caused annoyance for some countries that fear the Heads of States will be taking the dossier in hand. After the debate, Jean-Claude Juncker again expressed his optimism about the chances of success, without specifying whether he planned to achieve this at ministerial level, and saying: “We have made good progress. It is still difficult but we are moving towards agreement”. On Tuesday evening, Mr Juncker was to meet Gerhard Schröder but the compromise document of the Luxembourg Presidency will be reviewed and corrected by 20 March at any rate.
Although 3% remains the reference threshold for excessive deficit, the Presidency's document sets out many factors to be taken into account by the Commission when assessing the budgetary situation of a Member State, and also afterwards. Some of these factors are already foreseen by the current rules of procedure (Article 104§2 and §3), both implicitly and explicitly, but the Commission has never resorted to this. In the text, the appropriateness of launching excessive deficit procedure is dealt with in more detail with new references (that would complete Article 104§2), covering the quality of public spending (mainly research and development and investment), structural reforms (for example, pensions), consolidation in periods of growth, rate of reduction of the debt in previous years, natural disasters, external shocks and other major events entailing a special burden on the budget. Such factors may be taken into account not only when drafting the Commission's report but also at the other stages of excessive deficit procedure under Article 104. The Presidency document thus stipulates that such factors should intervene during the adoption of Council recommendations noting excessive deficit and prescribing measures (104§7), as well as during the establishment of time limits for correction. A Member State should normally correct its excessive deficit in the year following that when the deficit is noted, but, when there are “special circumstances”, this time limit could be extended by one year. These circumstances may be determined in compliance with the criteria for the definition of objectives in the medium term (see below), or when a country has had growth below 1% during 3 years and has carried out structural reforms. The time allowed for taking effective correcting measures will be extended from 4 to 6 months, giving the Council one month in which to decide upon formal notice of 2 months.
Berlin wanted the cost of German unification and Germany's status as net contributor to the EU budget to be taken explicitly into account. Not only Germany and France but also Italy are opposed to the Presidency's proposals. Paris is still adamant that defence spending should be taken into account, but also spending on humanitarian aid and development. For other Member States (Netherlands, Austria, Belgium, Spain, Finland), this list is too long, although some would like to add to it.
On the other elements of the correcting chapter of the Pact, the Presidency's document allows some flexibility for countries that are low-risk in the long term and which are affected by an adverse economic situation or which have implemented major structural reforms for which budgetary costs are direct and the positive impact verifiable. The new definition of exceptional circumstances (currently recession of at least 2%) allowing the country to escape excessive deficit procedure was considered too restrictive by ministers.
The preventive section of the Presidency's document proposes differentiation according to the debt level, the level of public investment and potential growth, the definition of medium term objectives having to be revised every four years. The Member States that have not reached their medium-term objective should pursue an adjustment trajectory of 0.5% of GDP annually on average (more in periods of good economic growth and less if the economic situation is unfavourable). In the document, the definition of “good periods” is open but could consist in the difference between current growth and potential growth and its evolution, or in a comparison with the average growth over a period of ten years. Structural reforms would also define the adjustment trajectory of countries that have not yet reached their objective and in order to authorise temporary deviation of those who have already reached it.