EU ministers grapple with euro stability rules

ECB President and Spanish Finance Minister Solbes attend a EU finance ministers meeting in Brussels
European Central Bank President Jean-Claude Trichet, left, and Spanish Finance Minister Pedro Solbes prepare Sunday to begin an emergency meeting of European Union finance ministers in Brussels.Francois Lenoir / Reuters
/ Source: The Associated Press

European Union finance ministers made no headway Sunday with plans to reform the rules underpinning the stability of the euro, debating ideas that go far in meeting German and French demands for room to spend their way out of economic problems.

Negotiations to weaken the euro’s Stability and Growth Pact — while retaining its key requirement that a euro-zone nation’s annual budget deficit not exceed 3 percent of gross domestic product — have been deadlocked for months.

The debate bogged down over Berlin’s long-standing demand that its massive German unification payments be seen as a valid reason to violate the stability pact’s austerity rules.

Germany already has spent some 1.5 trillion euros (nearly $2 trillion) on its post-Cold War reunification finance since 1990. Because that funding will last another 14 years, the Netherlands and others were unwilling to give Germany a break.

Sources said the ministers then debated an alternative under which euro-zone members could invoke costs related to the “unification of Europe” as an excuse to overshoot the targets of the euro stability rules if those costs impact negatively on growth and budgets.

Efforts decried as ‘huge joke’
Austrian Finance Minister Karl-Heinz Grasser — who ardently opposes a weakening of euro rules — rejected that. Earlier, he described the latest ideas for reform as a “huge joke.”

These proposals, contained in a 19-page report drafted by Luxembourg Premier Jean-Claude Juncker, whose country now holds the rotating EU presidency, were to satisfy demands by Germany, France and Italy for a less strict application of the rules that underpin the euro’s stability.

Juncker said he proposed a “strengthening and clarifying” of the euro rules’ application by the European Commission.

Juncker proposed that any country exceeding the 3 percent budget norm invoke its own reasons as to why it should be allowed to violate the rules. The suggestion replaced a contentious list of 16 specific reasons to escape a sanction. Germany found that list too bureaucratic; others found it too broad.

Any country exceeding the limit would get a four-year grace period to comply with any sanctions. But due to how the euro rules would be enforced, violators would effectively get five years before having to meet euro rules.

Pursuing mitigating circumstances
Besides credit for its post-Cold War reunification bill, Germany also wants to use its contributions to the EU budget — of which it pays 22 percent — as a mitigating circumstance. France wants to use its spending on research and defense as a reason to break the 3 percent cap.

Euro reform negotiations began in September. From the start, the Netherlands, Sweden, Austria, Slovakia, Estonia, Latvia and Lithuania have resisted a significant weakening of the stability pact, while Germany and France have said they need to use public funds to stoke growth, even if it means making the 3 percent rule meaningless.

The euro is the common currency of 12 EU nations: France, Germany, Italy, Spain, Portugal, the Netherlands, Belgium, Luxembourg, Ireland, Austria, Finland and Greece.

Since it came into circulation in 2002, France and Germany have repeatedly violated the 3 percent of GDP rule. They have resisted sanctions from the European Commission by rallying support from other countries that the Stability and Growth Pact must not be interpreted too strictly.