France's and Germany's defiance of the Growth and Stability Pact - 26.12.2003

Minister Didier Reynder's answer to Promeuro's letter (see separate article)
     

Mister President
Dear Mister Schul,

Your recent mail concerning the decision of the ECOFIN Council of last November about the Growth and Stability Pact related in particular to the procedure against France's and Germany's excessive deficits has come to me and received my particular attention.

I wish first to specify that, contrary to what you write in your mail, Belgium has systematically supported the propositions of the European Commission, as much regarding France as Germany. Unfortunately, every time, a minority was able to block the adoption of the Commission's recommendations.

After the rejection of these recommendations, Belgium, contrary to Spain, Austria, Finland and the Netherlands, did not oppose the compromise submitted to a vote by the Ministers of Economy and Finance.

This resolution - which asks France and Germany to reduce their deficits below the 3% by 2005 - is indeed less severe than the recommendations of the European Commission, but it seems to me that it would have been much more damaging, even dramatic for the very credibility of the euro that the ECOFIN disperses without any decision.

In other words, while I can associate myself fully with your regrets as to the outcome of the first vote, we have no other recourse than to accept a decision taken by a majority of Member States in application of the rules of the Treaty. Short of having reached an agreement on the "first best choice"  I take it upon my responsibility to have supported this contingency solution, indeed less ambitious, but having the merit to keep the pressure upon our partners and save the Pact.

I do insist that if the two States concerned make insufficient efforts to reduce their deficits, new recommendations can be adopted. This is most important : saving the spirit of the Pact and encourage our partners to return to a balanced budget.

Keeping this "peer pressure"1 is in my view very important. It has so far permitted, despite the rejection of the recommendations of the Commission at the November ECOFIN meeting, a slow but positive evolution in the attitude of  the two States concerned toward the Pact. I remind you of the declaration of some heads of States of last summer.

To complete these procedural questions, I draw your attention to the fact that the attitude of Belgium - that I qualify as being constructive - after the rejection of the Commission's recommendations, has yielded an acceptable compromise solution which would have not been the case if each partner had confined himself into an attitude of blockage, excluding himself de facto from the negotiations. 

The specific questions raised in your letter draw the following comments.

The Eurogroup and the ECOFIN Council pay considerable attention to the origins of the deficits of the Member States of the Eurozone, to the structural reforms that are implemented and to the means they use to return to a balanced budget. Evolution is here also positive, and even if the road toward a genuine Economic government is still long, the idea of a more thorough exchange of information about economic policies is each day better accepted in the Union.

In parallel, ECOFIN analyses - together with the contributions of the Economic and Finance Committee and the Committee for Economic Policies - the evolution of the problems of the pensions and the future needs linked to the aging of the population.

Your third point  (contagious consequences of France's and Germany's budgetary laxism) is well taken. It calls in my view two comments. The first one is that it is essential that all countries with excessive deficits be treated equitably, be they founding or new adhesion countries, big or small Member States. Belgium has always defended this intangible principle, namely toward Portugal.

The second remark relates to the adhesion of new Member States, whose situation is often characterised by a relatively low public debt linked to an important need for investment expenditures - material or immaterial - susceptible to reinforce their economic growth potential or necessary to improve effective convergence. This special situation will undoubtedly call for a clarification of some basic notions such as "exceptionally and temporarily exceeding the deficit threshold ".

Finally, regarding the possible reform of the Pact and the advisability to add into the new Constitution a number of dispositions on the subject, I believe that these are two issues to discuss together. We must draw the lessons from the last ECOFIN Council, by making the procedure on excessive deficits more efficient. This could involve a modification of the voting rules when implementing this procedure or even by the exclusion or the neutralisation of the countries with excessive deficits in the whole procedure concerning other countries. This could also call for a broadening of the procedures regarding budget warning and budgetary rigour in times of rapid growth. You rightly point out that so far the Pact did not allow certain Member States to follow this course, but the Pact had barely come into force during the last period of faster economic growth.

The recent events relating to France and Germany lead us to suggest amendments to the draft European Constitution, specifically regarding matters handled under article III.76, possibly also more generally to the question of multilateral surveillance of the economic policies as a whole.

It is appropriate, however, to recall that the Pact translated essentially into Regulations 1466/97 (stability and convergence programmes) and 1467/97 (clarification of the concepts and acceleration of the procedure regarding excessive deficits) of 7 July 1997. One should add the Resolution of the Council of Amsterdam of 17 June 1997, with basically a political impact.

In case the Pact is revised, it will lead to modifications to one of these texts and it is true to say that this particular point does not in itself concern the current discussion in the Intergovernmental Conference.

Concretely, propositions are currently being discussed and be assured that Belgium will continue to support any constructive proposals in that direction.

Hoping to have answered your queries and, remaining attentive to your interest, .....

Sincerely yours,
            Dider Reynders Minister of Finance, Belgium