EU Agrees Changes To Growth And Stability Pact

by Ulrika Lomas, Tax-News.com, Brussels

22 March 2005

EU Finance Ministers meeting today will be able to agree on a re-shaping of the Growth and Stability Pact after weekend talks were successful at hammering out a formula acceptable to Germany which allows deficits to exceed 3% of GNP if extra costs are to do with the 'reunification' of Europe.

Ten days ago a consensus seemed so unlikely that Luxembourg's Prime Minister and head of the EU Presidency, Jean-Claude Juncker was close to giving up on the dossier, saying: "I am now beginning to seriously consider the option of not changing the pact at all. We are not excluding the scenario of leaving the pact as it is. That is now a distinct possibility."

His frustration was aimed primarily at Germany, and the wording now agreed by all 25 EU Finance Ministers allows that country to exclude some of its transfers to the former East Germany from the deficit calculation. However, Germany will only be able to make use of the new clause if its deficit is “slightly and temporarily” above 3%.

A number of EU member states have breached the 3% in the past few years, and have been reprimanded by Brussels, something that sticks in the gullet of major countries such as France and Germany. Other countries such as Greece have escaped censure only through creative accounting.

Mr Juncker says that the weekend deal does not change the fundamental basis of the Pact, which is aimed at maintaining the stability of the euro.

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