Finance ministers to examine fiscal rules ‘softening’

By Anna McLauchlin

Date: 02/09/04

EU FINANCE ministers will get an early chance to give their views on new European Commission plans to soften the EU's fiscal rules on 10-11 September.

The Stability and Growth Pact, the new EU budget and oil prices will dominate discussions at an informal Ecofin gathering in Scheveningen, the Netherlands

Economic and Monetary Affairs Commissioner Joaquín Almunia will present his plans for the beleaguered pact to commissioners tomorrow (3 September) for approval before discussing the issue with ministers and presenting formal legislation next year

Under the proposed revision, a country facing "a protracted period of sluggish growth" would be allowed to run a deficit above the pact's 3% of gross domestic product (GDP) benchmark, rather than when it is in a "severe recession".

It could also have longer than one year to rein in its debt as Almunia's proposal recognizes that "one-size-fits-all deadlines" do not take countries' differing debt levels and cyclical developments into account

And the proposal suggests official warnings for those member states that do not put aside adequate funds during healthy economic times so that slowdown periods do not hit the economy so hard

France and Germany are likely to back the plans, especially since the July ruling by the European Court of Justice annulled the finance ministers' decision to suspend the pact in November rather than impose sanctions on Europe's big two

The Dutch government was one of the most vocal critics of the November decision. But, as holder of the EU's presidency, it has decided to soften its stance so that an agreement can be reached, a Dutch official said.

One position on which the Dutch stand firm is how much governments should contribute to the EU budget from 2007. Six member states have demanded a 1% cap to national contributions to the next EU budget.

Under plans from the Commission, national contributions are to be set at an average 1.14% of EU gross national income in 2007-2013. "The position of the six hasn't changed," said the Dutch official. "But being one of the six and also the president means we would like to further the discussion, not focus on the total number. We are looking at whether there are spending categories where it can be cut and where there needs to be an increase."

EU diplomats say that Germany, the Netherlands and the UK would consider using their national veto to block the budget plans if their demands are not met. Ministers are also set to tackle oil prices after Almunia expressed concern over the recent record highs

Preview of an informal Ecofin meeting in Scheveningen, 10-11 September 2004.