- The Washington Times - Thursday, January 20, 2005

Germany wants EU fiscal rules rewritten for its convenience, and other countries are crying foul — with good reason. Germany is testing the limits of pan-European solidarity.

In a Jan. 17 Op-Ed in the Financial Times, German Chancellor Gerhard Schroeder made reference to the “budgetary sovereignty of national parliaments” and said that countries in the European Union should only be penalized for falling astray of fiscal guidelines “under very limited conditions.” That position is a change for Mr. Schroeder. Germany has for years held itself up as the great European exception, insisting the EU fiscal rules be flexible when applied to itself, but resisting a general rewriting of the rules to benefit other members. Also, Mr. Schroeder has been no cheerleader for sovereignty, calling instead for greater powers for EU institutions in Brussels.

This year, Germany runs the risk of breaching the deficit cap of 3 percent of gross domestic product for the fourth straight year. Clearly, Mr. Schroeder is beginning to feel that Germany can get away with busting the fiscal deficit rules for only so long before it would be penalized by its EU peers — unless, of course, the rules were changed. France (another serial violator of the deficit ceiling) and Italy also favor a more liberal interpretation of the rules, called the Growth and Stability Pact. Unsurprisingly, these countries, which make up two-thirds of the $10 trillion EU economy, want the rules redrawn. Germany wants its payments to the EU budget and to the impoverished eastern part of its country discounted from deficit calculations. France maintains its defense spending should not be counted, and Italy wants its research spending excluded.

The eurozone’s 12 finance ministers gathered in Brussels Monday for a monthly meeting and promptly rejected the Schroeder proposal. Some redrafting is therefore necessary, but the terms should not be dictated by the narrow interests of EU heavyweights if European harmony is to be sustained. Instead, the union should adopt the recommendations made last year by former EU Monetary Affairs Commissioner Pedro Solbes. He proposed that a country’s debt levels, its ong-term health of public finances and the need for investment should be considered when deciding whether to apply a penalty for breaching the deficit ceiling. Finance ministers plan to propose reforms before the March 22-23 meeting of EU leaders.

The EU experiment entails, obviously enough, an abdication of national sovereignty. Some countries, like Britain, have been consistent in resisting an “EU creep” of jurisdiction, while Germany, which will have increased voting weight under a new constitution, has supported EU authority — except in fiscal matters. Some EU countries, such as Poland, will grow increasingly skeptical of the experiment if Germany, France and Italy continue trying to force through reform in their image.

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