Tuesday

27th Jun 2017

Ministers clinch deal on euro rules reform

EUOBSERVER / BRUSSELS – After months of complex and occasionally acrimonious debate, EU finance ministers have reached a deal on the reform of a key plank of the union’s economic policy.

An agreement was reached on how to reform the EU's infamous Stability and Growth Pact - the set of rules underpinning the euro – after 12 hours of emergency talks beginning on Sunday (20 March) afternoon.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

  • A new pact (Photo: European Commission)

Ministers will now draw up a report for EU leaders, who will rubber stamp the deal at a summit tomorrow (22 March).

But Jean-Claude Juncker, Luxembourg’s Prime Minister, who doubles as his country’s finance minister said that he had been in touch with other leaders and "did not expect a long discussion".

Expressing his "unbridled satisfaction" with the agreement, he said, "there will be no fierce controversy between heads of state and government".

Germany gets its way

The main sticking point during negotiations was a debate over what factors should be considered when deciding whether to punish a country in breach of the rules – as France and Germany have been for three consecutive years.

Broadly speaking, the rules state that no member state may run a budget deficit – tax receipts minus public spending – greater than three percent of gross domestic product (GDP).

Berlin insisted that the huge costs of Germany’s reunification should be considered, a claim that was initially dismissed by several ministers – including Mr Juncker himself.

And there was no mention of German reunification in the original draft proposal circulated to EU capitals late on Friday evening, infuriating the Germans.

However, a French-inspired compromise was found which paved the way for a deal.

A hastily re-written Presidency compromise text states that costs for the "unification of Europe" will be considered if a country breaches the three percent ceiling, but only "if it has a detrimental effect on growth and the fiscal burden of a member state".

EU sources say that Berlin was insistent that a specific reference be made to the unification of Germany, but that this was dropped in the interests of finding a deal.

No more list

At their previous meeting, ministers were also divided over a list of "other relevant factors" to be taken into consideration if a country breached the three percent ceiling.

Smaller member states felt that there were too many exceptions on the list and bigger states – notably France and Germany – felt that there were too few.

This row was solved by the removal of the list from the proposal.

Instead, member states may themselves submit "relevant" factors to which "due consideration" will be given by the Commission and the Council, according to the Presidency’s draft compromise – still to be finalised by EU leaders.

In addition to costs relating to the reunification of Europe, special consideration will also be given to "policies to foster R&D (research and development) and innovation", "financial contributions to fostering international solidarity" and the rather vague "achieving European policy goals".

Five more years

The Pact has also been softened in terms of the amount of time a member state is allowed to correct its deficit problem.

Countries will now be allowed two years to correct their excessive deficits, rather than the single year currently permitted.

Furthermore, this deadline could be "revised and extended" if "unexpected adverse economic events with major unfavourable budgetary effects occur during the excessive deficit procedure", allowing a further two years.

And as the process requires one year to be initiated, the proposal means that member states could have five years to correct their deficit, which, as some diplomats were quick to point out, means that German Chancellor Gerhard Schröder will hear no more from Brussels about his country’s fiscal difficulties until after the next German election – due in Autumn 2006.

More leeway

Furthermore, more leeway has been given to countries struggling with their deficits.

The new rules allow the three percent limit to be broken, but the deficit must remain "close to" the threshold and the breach must be "temporary".

New member states also secured one of their key demands that the cost of pension reforms are taken into account when assessing deficits. The Polish finance minister even hinted that this could help smooth his country’s path into the euro.

Excellent European solution

Italian finance minister Domenico Siniscalco said that the agreement was "an excellent European solution to a European problem".

Finnish finance minister Antii Kalliomaki, who said on his way into the meeting that "a small miracle" would be required, told reporters upon leaving, "a small miracle has happened. We found a common will".

The only finance minister not entirely happy was Austria’s Karl-Heinz Grasser, who has consistently argued that the Pact should not be loosened.

He told reporters, "It’s not the best solution I can imagine". But he welcomed the fact that the three percent deficit limit remains untouched.

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.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

Row between EU ministers halts e-book tax rate

A bill to reduce VAT rates on e-books and e-publications has become the latest victim of a row between the Czech Republic and its partners over its own plan to collect VAT.

Focus

EU and China move to fill US void

At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

Stakeholders' Highlights

  1. Malta EU 2017Conservation of Atlantic Tunas: International Measures Become EU Law
  2. European Healthy Lifestyle AllianceCan Statin Therapy Interfere With a Physically Active Lifestyle?
  3. EPSUOn Public Services Day, Stop Austerity! Workers Need a Pay Rise!
  4. EGBAOnline Gambling: The EU Court Rejects Closed Licensing Regimes In Member States
  5. World VisionFaces of Today, Leaders of Tomorrow: Join the Debate on Violence Against Girls - 29 June
  6. ECR GroupThe EU Must Better Protect Industry from Unfair Competition
  7. Malta EU 2017Better Protection for Workers From Cancer-Causing Substances
  8. EPSUAfter 9 Years of Austerity Europe's Public Sector Workers Deserve a Pay Rise!
  9. Dialogue PlatformGlobalised Religions and the Dialogue Imperative. Join the Debate!
  10. UNICEFEU Trust Fund Contribution to UNICEF's Syria Crisis Response Reaches Nearly €200 Million
  11. EUSEW17Bringing Buildings Into the Circular Economy. Discuss at EU Sustainable Energy Week
  12. European Healthy Lifestyle AllianceCan an Ideal Body Weight Lead to Premature Death?

Stakeholders' Highlights

  1. Malta EU 2017End of Roaming Charges: What Does It Entail?
  2. World VisionWorld Refugee Day, a Dark Reminder of the Reality of Children on the Move
  3. Dialogue PlatformMuslims Have Unique Responsibility to Fight Terror: Opinon From Fethullah Gülen
  4. EUSEW17Check out This Useful Infographic on How to Stay Sustainable and Energy Efficient.
  5. Counter BalanceEuropean Parliament Criticises the Juncker Plan's Implementation
  6. UNICEF1 in 5 Children in Rich Countries Lives in Relative Income Poverty, 1 in 8 Faces Food Insecurity
  7. International Partnership for Human Rights26 NGOs Call on Interpol Not to Intervene Versus Azerbaijani Human Rights Defenders
  8. Malta EU 2017Significant Boost in Financing for SMEs and Entrepreneurs Under New Agreement
  9. World VisionYoung People Rise up as EU Signs Consensus for Development at EU Development Days
  10. ILGA-EuropeLGBTI Activists and Businesses Fighting Inequality Together
  11. Nordic Council of MinistersNordic Prime Ministers Respond to Trump on Paris Agreement