‘Self-correcting’ plan revealed

Date: 20/06/1996

By Tim Jones

MEMBERS of the single currency bloc who miss their budgetary targets will have to submit to 'self-correcting' measures if Economics Commissioner Yves-Thibault de Silguy gets his way.

His proposal, due to be unveiled publicly at the end of July, will go a long way to establishing a 'stability pact' for monetary union members along the lines suggested by German Finance Minister Theo Waigel.

“The self-correcting measures will be in the convergence programme, presented by the member state, analysed by the Commission and agreed by the Council,” de Silguy told European Voice this week.

“The convergence programme would say 'if, by chance, I do not fulfil this or that objective which I have fixed and you have accepted, then automatically I will take this or that measure'.”

Although the Commission promised to turn Waigel's idea of a pact to enforce fiscal probity in the Euro-bloc into a communautaire system, this has proved awkward. The German minister's suggestion that a government's failure to keep its budget deficit below 3&percent; of gross domestic product would be met with a fine of up to 0.25&percent; of GDP could not be made to conform with the Maastricht Treaty.

But the Commissioner is bending over backwards to accommodate Bonn's demands.

“We have to show to public opinion, the markets, investors and consumers that the effort being made to bring about sound public finances will continue,” said de Silguy. “In this respect, the stability pact is an essential element.”

De Silguy will propose that the stability pact is established under Article 104c of the treaty, which sets out the rules for the annual excessive deficit procedure. This allows for new legislation to clarify how this procedure should be carried out.

The Commissioner's services are working on methods to make fines for overshooting budgetary targets as automatic as possible under the treaty.

“The problem is that the treaty does not say that the Council must impose fines, but only that it can,” said de Silguy. “We have to find a formula which allows it to be binding, while fully taking into account the fact that we cannot alter the treaty. It's a question of establishing a procedure whereby the Council is placed in a situation where it has no other choice but to take a decision.”

The treaty says that member states should try to fulfil certain budgetary targets and failure to do this could result in fines, loss of European Investment Bank funding or disadvantageous terms for issuing debt. It does not set deadlines for meeting the targets nor for the levying of fines and it assumes that every decision is taken within the full Council of finance ministers.

The Commission will instead call for the establishment of deadlines and make it clear that decisions within the stability pact will be taken only by the ministers who belong to it. This inner circle could have even wider powers than those originally envisaged by Waigel.

Once the Commission has come up with its detailed plans, they will be presented to finance ministers at their 'informal' meeting in Dublin in September.

De Silguy's aim is to get agreement on the stability pact and on the exchange rate relationship between single currency members and non-members by the end of the year.

“That will be one year before the beginning of EMU to give sufficient time to market operators to see what will happen once the system is up and running,” he said.

However, he did make it clear that no member state would be forced into membership of the Exchange Rate Mechanism.

The UK, which has resisted any suggestion that sterling would have to return to the system it left in 1992, has proposed instead that it should be allowed to target an inflation rate.

“That is not enough,” said de Silguy. “It is important that they keep control of inflation, the budget and debt, but the markets also look at political factors in the UK and that affects the exchange rate. Nobody can force them in, but the British are pragmatic and I hope they will consider it in their interests to join.”