European Commission looks set to ease the rules of the Stability and Growth Pact, July 2002

The European Commission looks set to relax the rules of the stability and growth pact after months of pressure from Member States within the eurozone.

In a speech made by Pedro Solbes on 9 July 2002 to a meeting of the 'Eurogroup 50', the European Commissioner responsible for economic and monetary affairs hinted at the need for change saying:

'Already now we can see a number of issues that will need to be addressed to enhance the effectiveness of the current set of rules'.

Mr Solbes is keen to improve the flexibility of the pact to stimulate growth within the eurozone economies. However, his plans will only apply to countries which have managed to achieve balanced budgets which means that France, Italy, Germany and Portugal, who have struggled to meet the balanced budget target and who have been the strongest critics of the rigidity of the pact, are unlikely to find little reprieve. The European Commissioner emphasised that these countries will still be expected to reach the objective stated at the Seville European Council, of completing their fiscal consolidation by 2004 and not exceeding a budget deficit of 3% of the gross domestic product.

The Stability and Growth Pact (SGP) was adopted at the Amsterdam European Council in June 1997. The Pact aims to ensure that all Member States contribute towards the overall climate of stability and financial prudence upon which the success of economic and monetary union depends. It calls on both the EU Institutions and the Member States to engage in the prompt and vigorous implementation of the excessive deficit procedure. The SGP has no legal force itself but it is backed up by two Council Regulations which effectively tighten up the surveillance procedure and minimise the degree of discretion which the relevant authorities enjoy under Articles 103 and 104 of the Treaty of Rome in the event of a Member State's economy moving away from its agreed targets.

The new guidelines on the interpretation of the Stability and Growth Pact are likely to be unveiled by the European Commission in Autumn 2002, along with a proposal for 'common standards' aimed at improving economic policy co-ordination in the eurozone. The 'common standards' should clarify the respective role of economic policies in preserving macroeconomic stability, raising the economic growth potential and coping with economic shocks.

Finance ministers from the eurozone countries were expected to discuss the proposals at their monthly Eurogroup meeting in Brussels on 11 July 2002.

Links:

European Commission:

• 09.07.02: The Stability and Growth Pact: its performance and prospects [SPEECH/02/325]
• 09.07.02: The Stability and Growth Pact [SPEECH/02/324]
• 11.07.02: Preparation of Eurogroup and Council of Economics and Finance Ministers, Brussels, 11 and 12 July 2002 [MEMO/02/165]
• DG Economic and Financial Affairs: Stability and convergence programmes

Council of the European Union:

• Implementation of the Stabilty and Growth Pact: Stability and Convergence Programmes

BBC News Online:

• 11.07.02: EU to relax rules on budget deficits
• 30.01.02: Q&A: EU budget warnings

European Sources Online: Financial Times:

• 12.07.02: Feeling the strain
• 11.07.02: Brussels may ease stability pact rules
• 11.07.02: Rewriting the pact
• 11.07.02: Brussels to revise deficit rules

European Sources Online: Topic Guide:

• Economic and Monetary Union

Helen Bower
Compiled: Friday, 12 July 2002

The European Commission looks set to relax the rules of the stability and growth pact after months of pressure from Member States within the eurozone.