Bonn takes tough line on Euro fines

Date: 04/07/1996

By Tim Jones

GOVERNMENTS who miss their budgetary targets within the single currency zone would face the prospect of sanctions within six months under tough new proposals from the German finance ministry.

Although some smaller member states have expressed concern about introducing such a tight deadline for correcting fiscal errors, most are expected to go along with the idea.

A fortnight before the European Commission publishes its own proposal for a 'stability pact' to enforce budgetary discipline in a monetary union, it too appears to have accepted the thrust of Germany's ideas.

The latest blueprint shows that Bonn is prepared to give very little ground in its fight for a pact with teeth along the lines first proposed by German Finance Minister Theo Waigel late last year.

Under the Bonn plan now being considered by members of the EU's influential monetary committee, a member state found to have an 'excessive' budget deficit - more than 3&percent; of gross domestic product - would have to put it right within six months.

Bonn believes that reliable data on the previous year's government finances will be available in March each year. At that point, it wants the clock to start ticking.

Once the figures were in, the Commission would have four weeks to prepare a report on any country with an excessive deficit. This would be swiftly followed by a recommendation from the monetary committee's successor on what action should be taken.

On the basis of these reports, the finance ministers of the Euro-bloc would vote on whether an excessive deficit existed and make recommendations for correcting it. The member state concerned would have four weeks to respond - and just four months after that to satisfy other member states that it had taken the necessary action.

If it failed to do so, the erring government would be forced to make a large non- interest-bearing cash deposit at the European Central Bank. If the imbalance had still not been corrected two years later, this would be converted into a fine and paid into the EU budget.

The only area on which Waigel seems prepared to give ground is on the size of the deposit/fine, which he originally suggested could be as high as 0.25&percent; of GDP.

“We are open to discussions in that respect as long as it has a deterrent effect,” said a German official.

At a two-day meeting of the monetary committee's 'alternates' to discuss the issue this week, the Commission indicated it had taken many of the German suggestions on board.

“There is some understanding at the Commission and now we have to see whether other people will put their money where their mouth is,” said a German official.

All member states agree that the excessive deficit procedures set out under Article 104c of the Maastricht Treaty need to be tightened up since they involve up to 14 different steps and could mean a five-year delay before sanctions kicked in.

But exactly how this should be done is beginning to cause disquiet. While the French authorities have gone along with the development of the short and fixed timetable, some of the smaller member states are sceptical. Pushing corrective measures through a national parliament will take at least three months and the effects of the measures another 12 months, they say.

“We believe less than a year is a totally unrealistic timescale,” said a monetary official. “We are very surprised that nearly all the other delegations agree with us in the corridors, but say nothing through the microphones.”

He added: “All this has taught us one thing. When the Germans presented the stability pact last year, they did not do it for fun. Everyone can now see they were serious.”