- The Washington Times - Friday, February 6, 2004

Germany and France have recently upped their hubris quotient when it comes to EU economic guidelines. After having repeatedly violated the economic stability pact guidelines that Germany itself proposed about a decade ago, these two countries leveraged their prominence to “suspend” any penalty for those violations. The governments took their posturing to a new level last week when they refused to have those economic guidelines, known as the stability pact, made more flexible for other countries as well.

Most European finance ministers, led by France and Germany, have told the European Commission that no changes should be made to the stability pact until 2005. Pedro Solbes, EU monetary affairs commissioner, has warned against this, maintaining that quick action is necessary to restore the credibility of the pact. Finance ministers are blocking even this step. Mr. Solbes has kept up a rather lonely battle to maintain the legitimacy of EU rules and has challenged the suspension of the pact.

Mr. Solbes’ proposals are quite modest and would neither alter the pact’s deficit ceiling of 3 percent of GDP, nor the enforcement mechanism to uphold the guidelines. But other portions of the pact should be more flexible, he has said. A country’s overall debt levels should be considered, as well as the long-term health of public finances and the need for investment, he proposed. But France wants to wait until 2005 for any debate on the stability pact. By then, Luxembourg takes over the EU presidency and is widely expected to do what Germany and France want.

The European Union will therefore probably continue to impose the same economic guidelines after they were so flagrantly disregarded by Germany and France. This can’t be expected to generate much bonhomie with the 10 countries entering the European Union in May. Many of those countries are struggling to put their own fiscal house in order, to comply with the stability pact and enter the single currency. They are expected to be kept out until they fall within close range, despite the fiscal missteps of Germany, France and others. For some, this could take a decade.

But more worrying than the audacity of Germany and France is their lack of economic judgment. The stability pact needs to be reformed. The system needs greater flexibility, just as Mr. Solbes has maintained.

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