Early dilemma for Barroso over Stability Pact sanctions

By Anna McLauchlin

Date: 18/11/04

THE inability of Greece and Hungary to bring their budgets under control will force the new European Commission of José Manuel Barroso to decide whether to confront the Council of Ministers.

Consideration of the budget deficits of Greece and Hungary was on the agenda of next Wednesday's (24 November) Commission meeting, which will be the first of the Barroso presidency.

But it has been put back amid uncertainty in the Commission as to whether to revive the possibility of sanctions under the EU Stability and Growth Pact.

Sources say both Greece and Hungary have failed to get their budgets in line, which they were supposed to do by this month.

The Commission launched the Pact's excessive deficit procedure in July against Greece, the Czech Republic, Hungary, Cyprus, Malta, Poland and Slovakia.

Commissioners are supposed to assess their efforts to cut budgetary deficits "as soon as possible" after 5 November.

If any do not come up to scratch, the Commission must inform the government under Article 104.8 of the treaty and, within a month, recommend further deficit-cutting action, opening the door to financial penalties.

But the new commissioners will be painfully aware that the Council voted to let France and Germany off that particular hook a year ago.

"It's a difficult situation," said one EU official. "How can you vote for sanctions against Greece when there were no sanctions for France and Germany?"

But another official said that finance ministers might uphold the Pact this time, given that Greece had concealed its deficit.

"The feeling of the majority is that this is different," he told European Voice.

"Everybody agrees this is not the same situation as last November."

A Commission spokesman said that the commissioners had decided to consider the seven member states in the broader context of France and Germany's deficit as well as the possibility that the Pact will be made more flexible next year.

But he said that this did not mean that there would not be recommendations against any of the seven countries, or that the Commission was obliged to propose action against Paris and Berlin.

The difficulty for the Barroso Commission will be how it can comply with the timetable laid down by the Pact, while taking account of pressure from some member states to change it.

The Commission runs the danger of recommending disciplinary action against a member state only weeks before the Pact is revised in a way that would allow the same state to escape an excessive deficit ruling.

Sources say that the Greek Finance Minister George Alogoskoufis will try to restart the clock by pushing for the Commission to re-declare Greece in excessive deficit.

That would recommence the Pact's timetable giving it an extra four months.

Greece's argument is that the revised deficit figures of 5.2% of gross domestic product mean that the situation is no longer the same as it was on 5 July when the Commission originally declared Greece in a state of excessive deficit.

"We don't know if the new Commission will be ready to consider the package of countries on 1 December - in which case the Council could vote at the 7 December Ecofin - or whether it will have to wait until January," said a Commission spokesman.

Preview of the first meeting of the European Commission under President Barroso on 24 November 2004 where the possibility of sanctions against some Member States under the EU Stability and Growth Pact is to be discussed. Greece and Hungary are said to have failed to get their budgets in line by November 2004.