By Brian Johnson - 2nd September 2004
The European Commission has introduced proposals to relax the rules of the EU’s much criticised Stability and Growth Pact.
Bowing to pressure from the euro zone’s largest governments, outgoing Brussels chief, Romano Prodi has unveiled plans to loosen tough EU fiscal rules.
Guidelines designed to give Europe’s euro currency stability across 12 countries have sparked a series of clashes between Brussels and national capitals culminating in a July EU court ruling.
“It is my firm belief that these proposals will provide for a stronger and more credible pact,” said Prodi a joint press conference with Joaquin Almunia, the monetary affairs commissioner.
“I am happy that the work undertaken by this commission has borne fruit today putting forward a blueprint of proposals that will contribute to the promotion of growth in Europe.”
Prodi said the proposed reforms were intended to “make the pact more intelligent.”
And the Brussels chief, who famously denounced the stability pact’s rules as “stupid” in 2002, appeared to accept a political reality where national government’s ignores Brussels budget edicts.
“The proposals present a credible compromise between economic soundness and political realism.” he said
Introducing the proposals Almunia insisted that the three per cent deficit cap would remain.
But, he explained, a more flexible interpretation would be used to decide what action would be taken against countries that breach it, with greater account taken of the effects of exceptionally weak growth.
“The commission intends to push forward this debate in an open and transparent manner and in close cooperation with member states. Our proposals introduce more economic rationale in the implementation of the Stability and Growth Pact while strengthening surveillance and enforcement.” said Almunia.
Describing the plans as “an evolution rather than a reform”, Almunia indicated that more use would now be made of early warning systems to flag up possible breaches, and more emphasis of peer pressure as a deterrent.
“This is a political process” said the Spaniard, adding that individual country circumstances would be taken into account rather than a blanket approach.
Half of the eurozones 12 members currently exceed the three per cent deficit ceiling.
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