ECJ Rules On Stability And Growth Pact

by Ulrika Lomas, for LawAndTax-News.com, Brussels

14 July 2004

The European Court of Justice on Tuesday ruled that European Union finance ministers were wrong to suspend penalties for France and Germany over the size of their budget deficits, which last year were in contravention of the terms of the Stability and Growth Pact.

The Pact is intended to be binding for all eurozone countries, and stipulates that budget deficits should not exceed a 3% of gross domestic product (GDP) ceiling.

The European Commission last year recommended that the two eurozone founding members, which helped to create the Stability and Growth Pact, should be fined for breaking the terms of the Pact by allowing their budget deficits to breach the 3% of GDP limit.

However, the Council of Ministers brushed this suggestion aside, voting instead to give the two countries a year's grace. This means that France and Germany will also be permitted deficits higher than the 3% limit stipulated by the Stability and Growth Pact for 2004.

Delivering its ruling, the ECJ ruled that the Council "cannot depart from the rules laid down by the treaty or those which it set for itself", and annulled the conclusions adopted by the EU finance ministers last November.

Clarifying the ruling, the court acknowledged that although responsibility for ensuring that EU member states observe budget discipline lies essentially with the Council of Ministers, once the disciplinary procedure against a country has been set in motion, ministers cannot modify existing recommendations "without being prompted again by the Commission, which has a right of initiative".

The European Commission has welcomed the ECJ verdict, but has declined to make detailed comment until it has studied the ruling in greater depth.

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