Brussels, 12/12/2005 (Agence Europe) - The revised Stability and Growth Pact is entering a “crucial” phase for its implementation, explained European Commissioner Almunia when recently pointing out the deadlines to come in the framework of the excessive deficit procedure (EUROPE 9077). In a study by the Swedish Institute for European Policy Studies (SIEPS) entitled “What remains of the Stability Pact and what next?”, Lars Calmfors looks into the contribution that the new Pact can make to budgetary discipline, before finally appealing for drastic changes. According to the study, it is unlikely that the Pact will regain lost credibility, unless it gives experts a bigger role in the decision-making mechanism. The public finance situation in the Member States “may have to get much worse before getting any better”, Mr. Calmfors says.
In the view of the Professor of international economics, “the reform of the stability pact represents a serious weakening of the constraints on large budget deficits” and the timetables planned for each stage of the procedure seem to “permit budget deficits above three percent of GDP for six to nine years before fines are imposed”. Overall, the changes made to the Pact, to him signify a movement from a “rules-based system (…) to a system of discretionary policy making”, in which political decision-makers are “free at any time to choose the policy they find the best”. This could lead to Member States making the most opportunistic budgetary policy choices, particularly before national elections, he explains. The result could be, in his view, a series of individual approaches which would have consequences for all the euro zone countries, which would bear the costs in terms of inflation rates, interest rates and exchange rates. “exploiting to a maximum degree the new exemption possibilities will effectively kill off most of the remaining credibility of the EU fiscal framework”, warns Mr Calmfors. The cases of France, Germany, Greece, Italy and Portugal will be real tests, but in his view we must not expect sanctions which could correct the weakening of the Pact. The incentives to resort to the sanction mechanism seem to him to be too weak, and to strengthen them, Mr Calmfors thinks that it would in particular be necessary to withdraw the decision-making power of the Ecofin Council and transfer it to the Court of Justice. These are proposals which are unorthodox and unlikely to be implemented, the author admits, appealing for a “sustainability pact”, with more strict provisions and bringing together countries where the budgetary situation is better (through enhanced cooperation, for example).
Another means to counter the weakening of the Pact would, in Mr Calmfors' view, be to strengthen the role of national institutions in budgetary discipline, for example by creating at national level “a fiscal policy council” composed of independent experts. This body would in particular be charged with supervising consistency between governmental policy and the objectives set, and would have more or less broad powers to intervene in controlling or even drawing up the budget. On the legitimacy of such an approach, Mr Calmfors thinks that there are as many arguments in favour of technocratic decision-making on budgetary matters as there were in favour of delegating monetary policy to independent central banks. These ideas are still “highly controversial”, he admits again, suggesting gradual experiments in a few countries, which could then serve as examples. (The report is available at http://www.sieps.se/_pdf/Publikationer/2005/20058.pdf ).