Verhofstadt plots new pact for EU’s economy

By Dana Spinant

Date: 17/03/05

Guy Verhofstadt, the prime minister of Belgium, is calling for a broader Stability and Growth Pact to govern the European Union's economy.

In an interview ahead of the EU Spring Summit, Verhofstadt said such a pact could cover social and employment policies as well as taxation.

He criticised the EU's current strategy for making itself more competitive, the Lisbon Agenda, and urged a new approach to revive Europe's flagging economy.

"We need a sort of a Stability and Growth Pact at a general economic level, but more flexible than the present one. At least for the members of the eurozone we need a compulsory code of convergence," he said.

Such a code would contain "minimum and maximum indicators which the countries that adopted the single currency will have to respect".

It was "an absolute necessity" for the eurozone but ideally, he said, it would also apply to the countries outside, since most of them would adopt the euro in due course.

Such a system could involve sanctions against countries that did not comply with the convergence margins, but Verhofstadt said that the question would have to be studied further.

The convergence code would aim at preventing social and fiscal dumping while guaranteeing competitiveness.

"I propose that we define minimum and maximum limits on the broad socio-economic indicators - labour market, employment policies, corporate taxes," he said.

"The minimum levels would ensure that our social model did not disappear in social dumping, which might be the case if we only have national action plans.

"The maximum levels would guarantee the competitiveness of our economy, by ensuring that there is sufficient pressure on the member states to reform," he said.

But he would not be drawn on the range of the minimum and maximum levels, saying this would be something for the Commission to propose.

Verhofstadt noted that the method on which the Lisbon Agenda is based, the open method of co-ordination, had failed to deliver results: "It puts a bit of pressure on the member states, once per year, when the Commission presents its report and when governments have to give explanations to parliaments. For the rest, there is no pressure."

He believes that a major tax reform is also necessary for Europe to become more competitive. "With the taxation system that we have in Europe, we export jobs, rather than produce them," he said, arguing for a shift from direct to indirect taxation, to tax consumption rather than income.

Verhofstadt, who has been strongly opposing the draft services directive put forward by the Commission, suggested the directive could be accepted more easily if it was accompanied by a proposal on services of general interest. "We could go much further on the services directives if we had on the table a directive on services of general interest because we would have a balance between the two," he said.

Verhofstadt said that he hoped that his new plan would stir a debate among his colleagues, the EU government leaders. "I do not expect that on 22-23 March, they will say 'yes, this is it'. What I want is to start a reflection on this approach. The other economic zones in the world are adapting to the present challenges, I think we have a strong interest to take the lead," he said.

Ahead of the Spring European Council of 22-23 March 2005, Guy Verhofstadt, the prime minister of Belgium, was calling for a broader Stability and Growth Pact to govern the European Union's economy. Such a pact could cover social and employment policies as well as taxation and could define minimum and maximum limits on the broad socio-economic indicators - labour market, employment policies, corporate taxes.