EU gives France more time to sort finances
EU officials insisted today that giving France more time to avoid punishment for overspending did not weaken budget rules underpinning the euro, despite warnings that they were sending the wrong signal on fiscal discipline.
“We serve the cause of credibility most when we are able to reach a common position,” said German Finance Minister Hans Eichel, who led the drive at an EU meeting in Brussels to postpone action against France for not meeting budget-cutting obligations.
Finance ministers decided to put off a decision until their next meeting, November 25, after French Finance Minister Francis Mer promised to come up with additional, as yet unspecified, budget cuts.
“Three weeks later is probably not a long period of time,” said EU Commissioner Pedro Solbes, after losing his push for a decision today.
Eichel, who conceded that Germany’s worsening budget deficit was likely to land him in the hot seat next, insisted that sanctions and strict budgetary tutelage called for in the “stability and growth pact” were intended to be used only to prod the recalcitrant.
“When member states cooperate, what do we need this procedure for?” he asked.
But the extension was criticised by a handful of smaller countries angry at what they consider special treatment for the eurozone’s big powers, France and Germany.
“Each country that did its homework … is paying the bill for the policies of France and Germany,” said Austrian Finance Minister Karl Heinz Grasser. He blamed their poor economic performance for lower growth and higher unemployment across the EU.
European Parliament President Pat Cox said that while he recognised the need for “pragmatism over dogmatism,” infighting between EU institutions over how to proceed had put the stability pact in the “casualty ward for treatment.”
Speaking in Berlin, Cox said, “Europe needs financial stability and we should not give a signal … that stability does not matter.”
But across town, German Chancellor Gerhard Schroeder insisted the rules allowed flexibility.
“In certain circumstances it is important and right to emphasise growth incentives,” he said. He added he was optimistic a “sensible course” would be found before Nov. 25 “that will do justice to France’s legitimate desire to achieve growth without abandoning stability.”
Paris is set to break the deficit cap of 3% of gross domestic product for a third straight year in 2004. It had resisted demands from the European Commission – guardian of EU treaties – for additional budget cuts, arguing they would jeopardise its fragile economic recovery.
But late yesterday, Mer said he would come up with new cuts for 2004 to give greater “credibility” to his pledge to get France’s budget deficit under 3% by 2005.
He refused to give details, but health care reforms and ditching one of the country’s 11 public holidays next year have been floated as possibilities in recent days.
“We must redress our public finances and make an effort, while acknowledging this is a delicate moment for our economy,” Mer said.
