Schröder: Euro Deficit Rules Need Reform
January 17, 2005
The EU's stability pact should be loosened to allow countries to run a deficit beyond the current limit of 3 percent of GDP, Schröder wrote in an article published in Monday's Financial Times Deutschland. He also argued that the EU should have less power to take action against countries offending the rules.
"The stability pact will work better if intervention by European institutions in the budgetary sovereignty of national parliaments is only permitted under very limited conditions," Schröder wrote. "Only if their competences are respected will the member states be willing to align their policies more consistently with the economic goals of the EU."
Schröder said the criteria should not be applied mechanically, but that credible growth and labor policies should allow countries to run higher deficits. They should be given leeway if they introduced costly structural reforms or were suffering from economic stagnation, Schröder wrote. As an example, he pointed to his own government's Agenda 2010 labor market and tax reforms.
The chancellor said allowances should also be made for countries shouldering "special economic burdens," such as Germany's substantial financial transfers to its economically weak east as well its large contributions to the EU budget.
Special treatment for Germany?
Germany violated the stability pact for the third time in a row with its 2004 budget, which once more tipped the 3 percent deficit limit. But it hasn't been punished for its breaches.
"We shouldn't forget that the stability pact isn't just designed for Germany, but is valid for all the countries of the eurozone. One country can't just say that its suffering exceptionally from it," economist Thomas Straubhaar, head of the Hamburg Institute of International Economics (HWWA), told DW-TV.
Since the euro has been able to hold its own, the rules shouldn't be softened, Straubhaar said of the stability pact. "Otherwise, one should go ahead and bury it."
Euro-zone finance ministers are set to meet in Brussels Monday evening to for two days of talks that will focus on changes to the stability pact.
German Finance Minister Hans Eichel said Monday he was hopeful that the EU would agree on changes to the euro rules in time for a European Union summit in March. He said he expected the 3 percent deficit limit to be retained.