EU's Solbes Says Stability Pact Suspension Illegal

In what could lead to a high-profile clash between the European Commission in Brussels and a number of EU member states, Solbes said the Commission’s legal service had determined there was no basis for circumventing the disciplinary procedures the European Union’s Growth and Stability Pact.

Led by the Germany and France, EU finance ministers in November opted to suspend the sanctions process against those countries currently flouting the budget deficit rules of the pact which was designed to underpin the euro. A Commission spokesman said the EU’s executive body would likely decide whether to take the issue to the European Court of Justice next week.

Clarifying the framework

Solbes told a press conference that a court ruling could help “clarify the framework in which budgetary surveillance is conducted in the future,” according to Reuters news agency. Some officials in Brussels fear the action by the finance ministers could set a legal precedent if it goes unchallenged.

Solbes has been highly critical of the suspension of the pact, which dictates that the 12 euro zone members are supposed to keep their budget deficits under three percent of gross domestic product or face possible sanction from the Commission. Both Germany and France, the two largest euro zone economies, are set to breach the deficit limit for a third consecutive year in 2004.

But finance ministers in November agreed to accept a political commitment from Berlin and Paris to get back under the limit by 2005. Both countries will now effectively avoid further disciplinary action as they try to spur growth via less restrictive fiscal policies. Were the Commission to pursue legal action on the matter and win, Germany and France could then quickly face heavy fines under the original stability pact guidelines.

Commission must decide

A spokesman for the German Finance Ministry said on Wednesday Berlin saw no grounds for action on the deficit matter. He added that the opinion of the EU’s legal department had not yet been accepted by the European Commission.

“That is one interpretation,” the spokesman told Reuters. “It is not the interpretation of the EU Council of Ministers or the federal government.”

Solbes does not seem to have the backing of all 20 Commission members for legal action. According to media reports, Commission President Romano Prodi and British, French and German commissioners support a more pragmatic approach.

But Irish Finance Minister Charlie McCreevy, the current chairman of the EU’s Ecofin council, on Wednesday appeared to be resigned that the issue could only be resolved by the courts. He told a press conference in Dublin that the finance ministers had received their own legal advice and had determined their decision in November was in line with EU law.

“I’m very understanding of the Commission's view of its role as a guardian of the treaties," McCreevy said. “But there are two sets of legal advice.”