Clash with Bonn looms over stability pact

Date: 17/10/1996

By Tim Jones

YVES-Thibault de Silguy's failure to win over a majority of his colleagues has set the European Commission on collision course with Germany over how to enforce budgetary discipline in a euro-zone.

At the end of a difficult week for the Economics Commissioner, he was out-voted in the full Commission by those opposed to specifying the depth of recession required before a single currency member would be exempt from the normal rules of fiscal control.

German Finance Minister Theo Waigel has staked much of his political reputation on winning acceptance for a watertight 'stability pact' aimed at keeping the budgets of EMU-bloc members under constant surveillance.

His pact specified that governments in the euro-zone would have to keep their budget deficits below 3&percent; at all times and close to balance in boom years. He wanted a fixed deadline of six months established between discovering an 'excessive' deficit and forcing the guilty member state to make a non-interest-bearing deposit worth at least 0.25&percent; of gross domestic product with the Commission. This would turn into a fine after two years if the budgetary imbalance had not been rectified.

Waigel was also unhappy that the Maastricht Treaty allowed countries to escape these sanctions in the event of an 'exceptional' and 'temporary' crisis, such as a recession caused by a sudden surge in the price of essential raw materials.

His officials demanded that governments should only be excused from the normal disciplines in the event of a massive recession, amounting to 2&percent; negative growth measured over four consecutive quarters.

In their draft version of the stability pact presented to the informal meeting of finance ministers in Dublin last month, De Silguy's services declined to be so specific about what 'exceptional' and 'temporary' should mean and stuck to their view that fines should be capped at 0.5&percent; of GDP.

But when they tidied up the text and took it to the EU's monetary committee last week, the German, French and Dutch delegates expressed their dissatisfaction with it and were soon joined by the Austrians and then the Finns. De Silguy was obliged to alter the text, inserting a definition of an 'exceptional' crisis as 1.5&percent; negative growth.

His final proposal prompted a fierce debate within the College of Commissioners yesterday (16 October). De Silguy won the support of President Jacques Santer, and Commissioners Hans van den Broek, Franz Fischler and Monika Wulf-Mathies, but they were outvoted by the others.

Now De Silguy must take a proposal which includes no quantitative measure of recession, and a ceiling on fines, to the German finance ministry, where he can expect a rough ride. The pact will go to finance ministers on 11 November, when the Germans are bound to oppose it.