Stability and Growth Pact under fire again, July 2003

Finance Ministers of the 12 eurozone countries met in Brussels on 14 July 2003, ahead of a meeting of the Union's Economic and Financial Affairs Ministers.

Known as the 'Eurogroup', the Ministers representing the eurozone countries were expected to share views on economic developments in the context of the weak economic outlook. They were, however, surprised by a call from French President Jacques Chirac for a softening of the Stability and Growth Pact.

According to the Financial Times, President Chirac:

'said he respected the pact's rules but a more political interpretation was needed to allow eurozone governments greater freedom of manoeuvre. "This is not about modifying the stability pact. It's a case of getting the representatives of eurozone nations to examine together the terms of a temporary softening," he said.

He added that the "provisional measures" for softening the pact would require the "individual circumstances of each country to be taken into consideration".'

The President made his call in a traditional Bastille Day interview. It was immediately condemned by a number of Eurogroup participants. The Financial Times quoted a number of them:

Austria's Economy Minister, Karl-Heinz Grasser, said 'We shouldn't even be discussing this - it's one of the pillars of our economic policy and the single currency.'

Finland's Finance Minister, Antii Kalliomaki, stated 'We have no room for softening the pact, not even temporarily.'

Gerrit Zalm, Finance Minister of The Netherlands, commented 'This is July 14, the day the Bastille was stormed, and now it's the day the stability pact has been stormed.'

The European Commissioner for Economic and Monetary Affairs, Pedro Solbes, claimed that 'The pact does not need to be modified.'

The Stability and Growth Pact is intended to regulate the economies of the Member States which are members of the Single Currency. It limits budget deficits to a maximum 3% of national economic output: a target which has already been exceeded by France, which is seeking to stimulate growth in its flagging economy by increasing public spending. France recorded a public deficit of 3.1% in 2002 and is forecast to hit 3.7% in 2003 and 3.6% in 2004.

Although Germany believes that the 3% budget deficit target can be met, Finance Minister Hans Eichel, quoted in the Financial Times, argued that 'Stability is not the priority right now ... we need growth.'

Other Member States, including Belgium, Greece and Spain also expressed concern at Mr Chirac's speech, as they have already taken action to limit their own budget deficits. The President's remarks will undoubtedly open up again the debate over the Stability Pact, which surfaced most notably in October 2002, when Commission President Romano Prodi said it was 'stupid' and too rigid.

The two meetings were also expected to give participants the opportunity to discuss an initiative promoted by the Italian EU Presidency to boost the eurozone economy, primarily by increasing investment. The BBC said the Italian plan aims to boost investment to €35-70bn annually; sees an increased role for the European Investment Bank, combined with private investment, and calls for €11bn for infrastructure projects over the next 10 years. The BBC did, however, note that 'Doubts exist that [the] private sector will want to finance public projects'.

Links:

BBC News Online:
	15.07.03:	Chirac's budget plea creates EU storm
	14.07.03:	Chirac seeks softer budget rules
European Sources Online: Financial Times:
	14.07.03:	Chirac seeks easing of stability pact
	24.04.03:	The stability and growth pact
European Commission:
	14.07.03:	Preparation of Eurogroup and Council of Economics and Finance Ministers, Brussels, 14-15th July 2003 [MEMO/03/146]
European Sources Online: In Focus
	Stability and Growth pact: European Commission takes action against France's budget deficit, April 2003
	Germany and others warned over budget deficits, January 2003

Eric Davies
Researcher
Compiled: Tuesday, 15 July 2003

French President, Jacques Chirac, called for a softening of the EU's stability and growth pact ahead of a meeting of the eurozone's economic and finance ministers in Brussels on 14 July 2003.