EU Forced To Relax Stability Pact Demands

by Ulrika Lomas, Tax-News.com, Brussels

26 September 2002

A report compiled by the European Union's Monetary Affairs Commissioner, Pedro Solbes has recommended that member countries be allowed until 2006 to balance their budgets, despite the fact that all EU states agreed just a few months ago to try and achieve this by 2004 at the latest.

The amendment is thought to have been proposed in order to accommodate France, Germany, and Italy, all of which stand dangerously close to breaching the 3% of GDP ceiling for deficits outlined in the Stability and Growth Pact.

France and Italy have both come under fire recently for pushing ahead with election pledge tax cuts and spending increases, despite being in no fiscal state to implement such changes. Both countries have argued that increased spending could boost growth, an argument which appears to have paid dividends.

Portugal, however, has not been so lucky. Following revelations that the Portuguese deficit last year breached the limit set by the pact, amounting to 4.1% of GDP, the country is now facing possible sanctions.

Despite reportedly having received the support of EC President, Romano Prodi, Mr Solbes' recommendation is likely to anger Spain, Finland, and the Netherlands, all of which have pushed for tighter budgetary controls in order to rein in the 'sloppy' economic practices of their peers in the past.

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