EU eases budget pact

BRUSSELS: European Union (EU) finance ministers have reached a deal to relax much-flouted budget rules that underpin the euro, bowing to Germany's key demand that its hefty unification costs be excused. 

“A small miracle has happened,” Finnish Finance Minister Antti Kalliomaki said after nearly 12 hours of emergency talks in which Germany secured special treatment for the billions it pumps into the former communist east each year. 

The EU ministers agreed to revamp the Stability and Growth Pact, undermined by repeated breaches by Germany and France, to allow more flexibility in applying the rules that limit public deficits to 3% of gross domestic product (GDP). 

“We're going to submit this text on which we reached complete agreement to heads of state and government at their summit on Tuesday and Wednesday,” said Luxembourg Prime Minister Jean-Claude Juncker, who brokered the deal as chairman. 

Jian-Claude Juncker

“I spoke to enough of them during the meeting to know there will be no long debate and no fierce controversy,” he added. 

In a concession to EU newcomers such as Poland and Hungary, EU Monetary Affairs Commissioner Joaquin Almunia said countries where pension reform raised the public deficit would enjoy a five-year grace period, a concession that will make it easier for them to join the euro. 

At a brief news conference just before midnight on Sunday, Juncker said the reborn pact would be more credible and workable. His comments appeared designed to calm financial markets and the European Central Bank, which had warned that interest rates might rise if governments rendered the pact toothless. 

“This is not a licence to run up debt,” a clearly relieved German Finance Minister Hans Eichel told reporters. 

The Stability Pact was adopted in 1997 at Berlin's behest to prevent EU governments overspending, but Germany ended up breaching the deficit limit for three years running, as did France.  

The pact can theoretically lead to huge fines, but attempts by the EU executive to take Berlin and Paris to task for serial breaches were blocked as the heavyweights fought back, saying the rules needed to take better account of economic downturns. 

The EU ministers broke the deadlock of recent months by agreeing on a series of get-out clauses that would be taken into account before deciding whether to start disciplinary action against countries that exceeded the deficit limit. 

The “relevant factors” that can excuse a big shortfall were couched in such vague terms that almost all found some solace. For example, France's demand that military spending and development aid be exempted appeared to be enshrined in a clause that cited “international solidarity” as a justification for temporary deficit overshoots. – Reuters  

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