European Union governments have settled on a reform of rules to guarantee the stability of the euro, satisfying German and French demands that euro-zone nations be given more room to spend their way out of economic problems.
Luxembourg Premier Jean-Claude Juncker, whose country now holds the EU presidency, said national Budget deficits will still not be allowed to exceed 3% of gross domestic product (GDP).
But governments will be able to invoke many reasons to escape an immediate sanction.
”I am extremely pleased we have an agreement,” Juncker told reporters on Sunday after all-day talks. He said he expected the EU leaders — who open a two-day summit in Brussels on Tuesday — to endorse the accord.
He said the 3% debt rule — along with the requirement that a country’s debt cannot exceed 60% of GDP — remains a key euro stability target.
But the reform enables the European Commission to apply the euro rules in a more practical, ”economic way”, said Juncker.
He said there will be a greater emphasis on growth when evaluating a country’s spending.
”You see before you a very happy German finance minister,” Hans Eichel told reporters.
His Dutch counterpart, Gerrit Zalm, who resisted Germany’s push for easing the stability rules, was also pleased.
”This is a new start for the Stability Pact,” Zalm told reporters.
In recent years, France and Germany ignored instructions from the EU to reverse their excessive deficits. Instead, they launched the reform drive.
Eichel said Germany wanted no ”licence to spend”, but euro rules ”that focus on growth and make it possible to judge a country’s performance on a case-by-case basis”.
Juncker said governments that run excessive deficits ”temporarily” will be able to escape from immediate sanctions if they show their spending serves a worthwhile goal, such as funding for research and development, defence or economic and social restructuring.
Any country exceeding the deficit cap may get up to five years to come back into compliance.
Germany — whose deficit has been in excess of 3% of GDP for the past three years — asked that its German reunification funding be a seen as a credible reason to violate the euro rules.
Since 1990, it has spent about €1,5-trillion to help the former East Germany shed its communist legacy in a funding programme that expires in 2019.
But Berlin’s partners objected and won a compromise: all euro-zone nations will be able to invoke unspecified ”European unification” costs to overshoot the 3% deficit target ”temporarily”.
Germany also wants to use its large contributions to the EU budget — it pays 22% — as a mitigating circumstance to miss the 3% deficit rule.
The reform negotiations began in September. From the outset, The Netherlands, Sweden, Austria, Slovakia, Estonia, Latvia and Lithuania resisted a wholesale erosion of the euro rules by Germany.
They were successful in safeguarding the role of the European Commission to monitor and judge the economic performance of individual nations.
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 the euro’s introduction, 10 euro-zone nations have come under fire for violations. Most of them run excessive deficits — of more than 6% of GDP in Greece’s case. Italy stands out for its total debt that exceeds 100% of GDP. — Sapa-AP