In World Economy News 13/05/2015
European Union finance ministers and the European Commission will agree this year on a new interpretation of EU budget rules to establish how much leeway countries can have in meeting those rules, EU officials said.
The interpretation of the rules – called the Code of Conduct – needs to be updated because the Commission and EU governments differ on when governments can get more time to reduce their budget deficits.
“The ministers agreed that work on an updated Code of Conduct should be done by the end of the year by the Economic and Financial Committee,” a spokesman for the Latvian Presidency of the European Union said.
With states like France and Italy desperate to ease austerity and spur economic growth, the Commission issued its own interpretation in January. It aimed to give countries as much room for fiscal manoeuvre as possible.
The rules say more time for deficit reduction can be granted only if a country “implements” or “adopts” major structural reforms that improve its public finances in the longer run. The Commission said just having detailed plans would be enough.
Fiscal hawks saw this interpretation as tailored for Paris, which at the time risked being fined for failing repeatedly to meet deficit-cutting targets set by EU ministers.
In March, France was given two more years to cut its deficit below the EU ceiling of 3 percent of GDP, the third extension in six years. In exchange, Paris merely promised more vigorous reforms. Little new legislation was enacted.
Lawyers for the council of EU finance ministers, asked to give their opinion, said the Commission interpretation went too far. To earn leniency, the council said, reforms must be adopted “through provisions of binding force, whether legislative or not”.
The ministers did not discuss the legal opinion in detail. Their deputies in the Economic and Financial Committee will do so over the coming months.
German Finance Minister Wolfgang Schaeuble, who earlier this year supported giving France more time for deficit cuts on promises of reforms alone, now said he shared the views of the council legal services that the Commission view went too far.
“I was sure anyway that the rules are what they are, and now I feel encouraged that the legal service confirmed our position. Not surprisingly,” Schaeuble told reporters after the ministerial meeting.
The Commission said it was aware of the council legal opinion, but its own lawyers thought its interpretation was legal. It noted that ministers had welcomed its communication on the room for manoeuvre at the time.
Source: Reuters (By Jan Strupczewski, Additional reporting by Tom Koerkemeier and Alastair Macdonald;
Reporting By Jan Strupczewski; Editing by Larry King)
