Bonn seeks euro pact pledges

Date: 28/11/1996

By Tim Jones

WORRIED that its plan to maintain budgetary discipline in a single currency bloc is being watered down, the German government is calling on member states to make a public commitment to its strict enforcement.

Bonn wants its 'stability pact' to be underpinned by a summit resolution which would effectively remove any discretion the European Commission and finance ministers might have in policing member states' fiscal performance.

As the Dublin summit on 13-14 December approaches, officials are becoming increasingly pessimistic that a final agreement on the shape of the pact can be reached in time.

To underline the importance he attaches to a tightly-defined pact, Germany's Theo Waigel will on Monday (2 December) attend a meeting of EU finance ministers for the first time in three months.

While much of the pact has been agreed in principle, Bonn is still concerned that it is not watertight and leaves too many decisions to the discretion of politicians.

To restrict their room for manoeuvre, Germany has proposed that the Luxembourg summit in December 1997 should agree a detailed, formal resolution on how to administer the pact. This would be “politically binding” on the Commission and the member states which signed it, says the latest draft, declaring: “It publicly enhances the commitment of all parties involved to a strict application of the stability pact ... and gives clear guidelines on how to use the discretion left in the regulations.”

Waigel is still unhappy with the version of the pact drafted by the Commission. Although it contains many of the proposals made by the German finance minister last autumn, the Commission's text falls down in two key areas: calculating the size of fines for missing budgetary targets, and defining exactly when a monetary union member should be excused from paying cash sanctions for running up an 'excessive' budget deficit.

The Germans are still holding out against the Commission's suggestion that penalties for a consistent budget deficit above 3&percent; of national income should be capped at 0.5&percent; of gross domestic product.

Officials believe that this issue, while problematic, is solvable. The second problem is proving the hardest nut to crack.

The Maastricht Treaty allows a member state with a budget deficit above 3&percent; of GDP to escape punishment if this has been caused by “exceptional” and “temporary” factors. While Waigel wants to define this precisely as a severe recession measured as negative growth of 2&percent; over four consecutive quarters, the Commission merely refers to “a severe economic downturn” reflected in “significant negative annual real growth”.

At a meeting of the EU's monetary committee this week, the two sides came closer to agreement on a definition - identifying what they called a “grey area” in the concept of a “severe economic downturn”.

All sides agreed that negative growth of 2&percent; would certainly be a severe economic downturn, while anything more than 0.5&percent; could also be defined as severe as long as this was backed up by further evidence from the member state concerned and the Commission.

Officials are desperately trying to piece together a tentative deal in time for next week's meeting of finance ministers. “The last thing anyone wants is to leave too many open-ended areas to the summit, because then you risk leaving things to the 'unguided missile' of heads of state and government,” said one official.

Nevertheless, Waigel and Chancellor Helmut Kohl have made it clear that they are prepared to wait. “It would be great if the Ecofin could decide on the stability pact but, if not, there is no need to hurry,” said Waigel's spokeswoman.