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Hans Eichel Attacks EU Commission Over Stability Pact

by Ulrika Lomas, Tax-News,com, Brussels

18 November 2003

'The best method of defence is attack' is a well-known saying in English, and German Finance Minister Hans Eichel must be obeying a German equivalent as he takes a swing at the European Commission, calling its stance on the European Union's stability pact 'devoid of all logic' in a Financial Times article.

With the Commission threatening to take action to compel Germany to rein in its budget deficit, which the government admits will exceed the stability pact's 3% limit both in 2003 and 2004, Mr Eichel says that the pact should not be interpreted along strictly 'mechanical' lines.

According to a statement released recently by the government, tax revenues in 2003 are forecast to undershoot expectations by 8.2 billion euros, whilst next year the tax take will decline by a further 10.9 billion euros. These shortfalls are in addition to 15.5 billion euros of tax cuts which Mr Eichel wants to bring forward from 2005 in order to light a fire under the sluggish economy.

The consequence of less tax - and the government's inability to restrain the sacred cows of social and pensions spending - is inevitably felt in higher borrowing, and this is causing the opposition to hold up the Finance Minister's plans in the country's upper house.

Persistent deficits in Germany and France have begun to undermine the stability and growth pact (people have started leaving out the 'growth' part lately - stability seems already hard enough). Countries with stronger economies have been urging the Commission to uphold the pact, but Mr Eichel says that the Commission has provoked "avoidable and needless conflicts" with EU members over the pact. He told the Financial Times that it is "unacceptable for member states which conform to the measures agreed in the Ecofin (the EU finance ministers' meeting) to be subjected to additional procedures and sanctions. This sort of discipline is devoid of all logic and contradicts the spirit of the pact".

For Mr Eichel, current discussions of how to interpret the pact are justifiable adaptations of a flexible mechanism to take account of changing economic circumstances, and not evidence of any weakness in its structure. Well, he would say that, wouldn't he?

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