16th Nov 2018

France and Germany cast doubt on the stability pact

The Franco-German motor appears once again to be at full throttle, with a joint call for Europe’s stability pact – the economic framework governing the eurozone - to take more account of inflation and unemployment.

The initiative to "refine" the pact and make its strict focus on budget deficits more flexible, was presented yesterday to a meeting of the EU’s 15 Finance Ministers, the Ecofin Council, reports the Financial Times.

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This was the first Ecofin meeting since European Commission President, Romano Prodi’s, public pronouncement that the stability pact was "stupid". Mr Prodi was hauled before the Finance Ministers yesterday to explain his statement. It was reported to have upset some smaller member states who have been adhering strictly to the criteria.

The Commission President reaffirmed his belief that he simply wanted the pact to be applied "intelligently."

Franco-German pact

Applying a tactic seen most recently at the Brussels Summit when German and French leaders met privately beforehand, the German and French Finance Ministers, Hans Eichel and Francis Mer, met ahead of the Ecofin Council on Monday in Brussels to discuss tactics.

The move has also been regarded as an effort to address the failure of the two countries to stay within the pact’s 3 per cent budget deficit criterion. According to Le Monde, Mr Mer views the recent criticism of the pact’s inflexibility as a justification of his hardline stance at the Ecofin Council in October. The French Finance Minister found himself isolated when he refused to commit to reducing France’s budget deficit from 2003.

Germany has also recognised that for 2002 its deficit will go over the 3 per cent of GDP stipulated by the pact.

Five parameters

Mr Mer proposed the progressive introduction of five parameters to measure the economic performance of eurozone countries. These would be the budget deficit, inflation, employment-related issues, national debt, and the "quality of future preparations."

EU Monetary Affairs Commissioner, Pedro Solbes, is refusing to back down over his intention to apply the pact’s strict rules to both France and Germany. However, he said that he was already preparing proposals to make the rules more flexible for countries with low levels of debt.

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