17th Jul 2018

Ministers fail to reach agreement on euro rule reform

Finance ministers from the 12 euro zone countries have failed to reach agreement on how to reform the rules underpinning the euro and have arranged a special last-ditch meeting on 20 March, only two days before EU leaders meet to take over the dossier.

Leaving the meeting after almost 10 hours of talks, Luxembourg’s Prime Minister Jean-Claude Juncker said, according to agency reports, "we have made good progress. It’s still difficult but we are progressing towards an agreement".

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  • The row pits France and Germany against smaller member states, notably Austria and the Netherlands (Photo: European Commission)

Earlier, on his way into the meeting, German finance minister Hans Eichel said, "I wouldn't be confident that we will get there today, but in the end we will succeed".

"I expect, as is always the case in Europe ... that we will need a special meeting just before".

And several other finance ministers indicated that an extra meeting would be necessary to thrash out a deal.

Old adversaries

As in previous disputes over the beleagured Stability Pact, the row pits France and Germany against smaller member states, notably Austria and the Netherlands.

Whilst France and Germany favour a looser, more flexible pact, Austria and the Netherlands want a "stability pact with teeth", as Austrian finance minister Karl-Heinz Grasser is fond of saying.

Consensus has broadly been reached that the main part of the rules - that member states must not have a deficit above three percent of gross domestic product (GDP) - should not be changed.

The argument now revolves around what circumstances should be taken into account when deciding whether to punish a member state whose deficit exceeds this ceiling.

France and Germany want several factors to be taken into consideration - such as spending on research and development.

Speaking at a meeting today with his German counterpart, French President Jacques Chirac said he did not want the punishment mechanism to be started automatically, but rather that each country should be judged on its own specific economic situation.

Paris wants spending on research and development to be excluded from the deficit calculation, with Mr Chirac saying that "investment and research spending ... prepare the riches of tomorrow".

Germany wants to go further to exclude its contributions to the EU budget as well as costs arising from the unification of the country.

Italian Prime Minister Silvio Berlusconi has also warned that he will veto any reform package which he does not judge sufficiently flexible.

Compromise package

The Luxembourg Presidency has presented a discussion paper detailing a list of potential exceptions.

But Austria - who along with the Netherlands - is not in favour of loosening the pact too far, rejected the proposals.

Finance minister Karl-Heinz Grasser - seen as a hardliner on this issue - said that the proposals went "in the wrong direction".

However, the compromise proposals go a long way to satisfying German demands and will make it much easier for member states to avoid being punished for excessive deficits.

Pact-breaking countries will also be given an extra year to whip their economies into shape if growth has been poor and reforms have been carried out.

Credibility at stake

The negotiations come 16 months after the pact was effectively destroyed as finance ministers voted down Commission recommendations to begin disciplinary action against France and Germany.

The European Central Bank (ECB) has warned repeatedly against a loosening of the pact, arguing that the credibility and the stability of the single currency is at stake.

And the credit ratings agency Standard and Poors has recently cautioned that a softening of the Pact could harm the credit ratings of some member states.

The 12 ministers will be joined on Tuesday by finance ministers from the 13 EU countries which have not joined the euro.

Furthermore, fearful that the row could drag on into the meeting of EU leaders on 22-23 March, German Chancellor Gerhard Schröder meets the current President of the EU, Luxembourg's Jean-Claude Juncker tomorrow.

Glossary of key euro pact terms

The language surrounding the EU's Stability and Growth Pact can be highly complex for the uninitiated. Click here for an explanation of the key terms.

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