The European Commission was left humiliated last week after European Union finance ministers ignored its demands to punish France and Germany for borrowing too heavily.
In a move widely condemned as a political fudge, most ministers, including British Finance Minister Gordon Brown, decided to suspend the sanctions mechanisms that could have brought heavy fines against Paris and Berlin for breaches of the eurozone’s stability and growth pact.
Critics labelled the deal — which gave the two countries until 2005 to get their deficits below the 3% of gross domestic product allowed under the pact — as ”a blow to the foundations of monetary union” and a ”sin”.
They warned it could have grave implications for European law and for the new EU constitutional treaty.
The European Central Bank said it shared the commission’s deep regret at the decision, and warned of ”serious dangers” for the 12-country zone for which it sets interest rates.
However, German Finance Minister Hans Eichel, who had vowed to defend his country’s ”vital interests”, called the decision ”very reasonable”. Earlier he had warned that forcing Germany to comply with the rules would threaten its fragile economic recovery.
It was Germany that originally insisted on drawing up the pact to prevent overspending by member states fuelling inflation before the euro was launched in 1999. But it has found itself fighting to avoid punishment under the terms of the pact, that might tip its sluggish economy into recession.
Brown, repeating his well-honed message that national capitals, not Brussels, call the shots, was clearly delighted that the commission’s demands had been vetoed.
”We’ve been concerned to ensure the stability pact remains inter-governmental, between member states,” he told reporters.
The decision, initially made by the 12 eurozone countries, was loudly condemned by The Netherlands, Spain, Austria and Finland, which have all rigorously applied the rules to keep their deficits down.
Opponents said a bad signal was being sent to the 10, mostly east European, countries due to join the club next year. The 10 are obliged to meet the Maastricht treaty criteria and adopt the euro, and are driving through unpopular economic reforms.
”They [France and Germany] are shifting part of the burden of their excessive deficits to our economy,” protested Dutch Finance Minister Gerrit Zalm.
Jurgen Stark, the vice-president of Germany’s Central Bank, said the majority decision was ”a hard strike against the foundations of monetary union”.
A furious Austrian Chancellor Wolfgang Schussel said: ”It cannot be that rules are set aside just because they affect the largest countries. I consider this a sin.”
Poland, which, like Spain, has expressed concerns about small states being overruled by big countries, warned that any tinkering with the voting rules laid down in the Nice treaty to give big countries more say would be opposed.
Pedro Solbes, the Spanish Commissioner for Economic Affairs, condemned what he called a ”political” decision. That brought a tart response from French Finance Minister Francis Mer that he was ”entitled” to his view.
Commission officials did not rule out legal action in the European Court of Justice to force eurozone governments to follow the rules.
Even reluctant supporters, such as Belgium’s Finance Minister Didier Reynders spoke of a dangerous precedent. ”There is never a good time to depart from the treaty. But this is particularly dangerous because we are on the eve of negotiating a new constitutional treaty.
”It will be rather difficult to explain that we absolutely want to respect the rules of this new treaty at the same time as we are seeking blocking minorities to avoid applying the current one.”
The countries that opposed the commission argued that the stability pact did not take into account exceptional circumstances and lower than expected growth. ”We have to interpret the pact intelligently,” said Giulio Tremonti, the Italian Finance Minister. — Â