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Articles: Court overturns finance ministers

Posted by admin on Tuesday, July 13, 2004 - 06:22 AM

The European Court of Justice has annulled a decision by EU finance ministers to suspend action against Germany and France over budget deficits.
Giving its verdict on a case brought by the European Commission, the court said the ministers' decision was not compatible with EU law. Before the ministers got involved, the commission had been planning to penalise or even fine the two nations. This is because France and Germany keep breaking the Stability and Growth Pact. The pact is meant to keep the deficits of eurozone states below 3% of GDP, but several - most notably France and Germany - have breached it. The pair are on track to breach the deficit ceiling for the third year running. In its ruling the European Court of Justice said the council of finance ministers "cannot depart from the rules laid down by the treaty or those which it set for itself in regulation no 1467/97 (which specifies the terms of the pact)". The German and French finance ministries declined to comment individually following the court decision. Instead EU finance ministers said in a joint statement that they welcomed the clarification from the court. "The council (of finance ministers), in cooperation with the Commission, will closely examine the implications of the court's decision for the application of the pact's provisions and proposals for strengthening and clarifying the implementation of the pact," they said. Power tussle In November 2003 the EU finance ministers, led by the German and French representatives, voted to suspend action against Germany and France, arguing that the 3% rule was too severe. In an effective fight for power between the European Commission and the finance ministers - who come from the member states - the commission quickly followed with its lawsuit. And while the commission has since agreed that the 3% rule does in fact need to be relaxed, it has continued to object to the intervention of the finance ministers and the law suit remained. The 3% rule and the subsequent penalties were formulated to prevent bad budgetary policies in one member state having an effect across the eurozone. The pact has been controversial, with critics saying its focus on fighting inflation means it is ill-equipped to deal with slow growth. But smaller countries, including the Netherlands, have insisted that all 12 eurozone members should stay in line. And Portugal has worked strenuously to remove its own deficit. Possible relaxation Yet at the same time other eurozone nations, such as Italy and Greece, have been struggling with their deficits. And six of the 10 new EU countries that are committed to joining the eurozone at some point also have excessive deficits - Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia. All these factors could only have influenced June's comments by economic affairs commissioner Joaquin Almunia, who admitted that the Commission had been "too stringent" with the Stability and Growth Pact. Calling for more flexibility, he said it was "probably necessary" to clarify the definitions of the pact's rulebook.

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