ECJ To Hear EC Challenge To Stability And Growth Pact Decision

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

28 April 2004

The European Court of Justice (ECJ) will today hear the EC's challenge to the European Council's decision to allow France and Germany to avoid penalties for their violation of the terms of the Stability and Growth Pact.

The terms of the Pact are intended to be binding for all eurozone countries, and stipulate 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.

Whatever the decision reached by the ECJ, there are likely to be far-reaching consequences; if the Commission is successful in its challenge, then France, Germany, and any other countries which fall foul of the budgetary rules could face hefty fines, and if the Council's decision is upheld, the terms of the Pact are likely to be submitted to radical reform.

A decision from the European Court of Justice on the matter is expected within the next three months.

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