EU To Admit Defeat Over Stability And Growth Pact, Report Reveals

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

02 September 2004

According to the Financial Times, the European Union is to admit defeat with regard to the Stability and Growth Pact, conceding that the rules have "lost credibility", and are in need of reform.

In a paper expected to be released on Friday, Monetary Affairs Commissioner, Joaquin Almunia will unveil plans for increasing the flexibility of the Pact, and relying more on peer pressure than the threat of sanctions.

The proposals set to be put forward by Mr Almunia, the FT revealed, will include: a redefinition of the 'exceptional circumstances' clause whereby a country can justify running a deficit above 3%; the introduction of a more flexible timetable for member states running excessive deficits to resolve the problem; allowing countries with sound finances more freedom to run modest deficits; and formally warning countries which fail to implement sound economic policies during favourable economic times.

The 3% of GDP ceiling would remain as "the necessary strong backbone of the fiscal framework", and although the possibility of sanctions is likely to remain in place as a deterrent, Mr Almunia is expected to place more emphasis on peer pressure, and on "naming, shaming and, if necessary, blaming".

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