7th Jul 2020

Duisenberg warns of 'disaster' for Europe ahead of stormy meeting

The outgoing President of the European Central Bank, Wim Duisenberg, warned today (Friday 31 October) that dismantling the rules underpinning the euro would be a "disaster for Europe".

Mr Duisenberg told a German TV station, "the danger [of unravelling the Pact] is certainly there and that would be a disaster for Europe. And I do hope, and I am sure the ECB will do everything it can to uphold, to keep upright, the Stability and Growth Pact, which now is certainly under strain".

Stormy waters ahead for finance ministers

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The comments come ahead of what promises to be a stormy meeting of EU finance ministers next week.

Finance ministers of the "eurogroup" - the 12 countries that share the euro - will meet on Monday evening and will be joined by the three countries outside the euro zone - Denmark, the UK and Sweden on Tuesday.

The main - and most controversial - issue on the agenda is the decision of whether to enforce measures that France will have to take to reduce its budget deficit - its tax receipts minus public spending.

France will break the Stability and Growth Pact, which limits this deficit to three percent of GDP for the third year running in 2004.

The European Commission gave France an extra year to comply with the rules on 21 October. But Brussels also told Paris to make more budget cuts in 2004, which France has said will not be possible.

Splits in the Council

In theory, breaking the Pact can lead to fines of billions of euro, but finance ministers are split on how France should be treated.

Germany, for example, which is also currently in breach of the euro rules, wants a soft approach to be taken. It is mindful that any action taken against France will probably be applied to its own situation in the near future.

But smaller countries, led by the Netherlands and Austria, feel that France should be punished for its disregard of the rules.

Austrian Finance Minister Karl-Heinz Grasser told Bloomberg television today that he thinks France should be fined.

He said this would be "the worst possible solution for France. But it's their own fault that they are in this situation because they haven't done enough over three years to consolidate their public finances, and that's why I would argue for sanctions".

Postponement is the likely option

EU sources quoted by the Reuters news agency said that France may suggest additional measures for cutting their deficit.

This would probably result in the decision of what to do with France being postponed until the next meeting - later in November.

Mr Grasser also hinted at a postponement of the most controversial issue. He said that a vote would be taken on the less contentious issue of whether France had complied with Commission recommendations.

"This will be the first decision taken next week, and then, some time at the end of November, we will have to take a decision on what will happen with France in the future", said Mr Grasser, adding, "France has to do more".

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