Call for summit to make debt cuts – not jobs – top priority

Date: 16/04/1998

By Tim Jones

THE European Commission is calling on governments to use any windfall tax revenues generated this year by increased economic growth to reduce debt rather than tackle unemployment.

A declaration drafted for approval by EU leaders at the 1-3 May Brussels euro summit stresses that they should make accelerating "the pace of budgetary consolidation" their top priority.

Such a bald statement is bound to worry the French authorities and the left-wingers the Italian government depends on for support. Only last week, French Finance Minister Dominique Strauss-Kahn stressed that his government had "no religion" about the need to narrow budget deficits and would do everything it could to create jobs.

The declaration has been drafted by the Commission in response to a request from German Finance Minister Theo Waigel last month. To allay German concerns that Italian and Belgian public debt levels are too high, Waigel called for the agreed growth and stability pact to come into force immediately after the May summit. The pact aims to keep euro-zone governments' budgets under tight control.

The confidential draft to be considered at a meeting of the EU's secretive monetary committee next Monday (20 April) sets out the 1998 objectives for all Union governments, including those certain to remain outside the euro-zone next year.

"We will keep budgetary developments in this current year under close review," says the statement. "We are committed to ensuring that the targets set for 1998 are fully met; if necessary by taking corrective action.

"If developments are better than expected, we will use any additional leeway to accelerate the pace of budgetary consolidation," it continues.

According to the latest Commission forecasts, all member states including Greece will this year narrow their budget deficits to less than 3% of gross domestic product - the aximum permitted under stability pact rules. Existing budgetary plans should ensure that eight countries' deficits are below 2% of GDP this year and, of these, five are in surplus.

The commitments in the declaration will come as a blow to Rifondazione Comunista leader Fausto Bertinotti, who provides Italian Prime Minister Romano Prodi with the support he needs to sustain his coalition in the parliament's lower house.

To win German and Dutch support for his bid for first-wave EMU membership, Prodi must gain at least some level of parliamentary approval for his government's three-year economic programme (DPEF), which will be presented to the senate tomorrow (17 April).

This includes a commitment to create 700,000 jobs, with measures targeted on the less-developed south of the country.

"It seems to me that the centrepiece of the DPEF has shifted from fiscal consolidation to the struggle against unemployment, which is doubtless a good thing," said Bertinotti last week.

Given Bonn's political imperative to make the pact watertight in the run-up to this autumn's general election, the declaration is likely to be agreed in May. If it is, it will commit all member states to submit programmes setting out their tax and spending plans for the coming three years well before the deadline of 1 March 1999 laid down in the pact.

"We commit ourselves to submit the stability and convergence programmes which are the basis of the strengthened surveillance as soon as possible and, at the latest, by the end of 1998," it says.

"We invite member states and governments to submit the programmes where appropriate and possible before they submit the draft budget to their parliaments."

The summit will also call for an assessment by the Commission as early as July, when the European Central Bank is created, of governments' budget plans for 1999 to ensure that they "respect the medium-term budgetary objective of positions close to balance or in surplus".

Feature on a draft Commission text intended for the 1-3.5.98 Euro Summit in Brussels stresses that the acceleration of the 'pace of budgetary consolidation' should be the top priority of Member States.