Eurozone ministers reject stability pact reform

Eurozone finance ministers have agreed that the stability and growth pact provides enough flexibility to stimulate economic growth. Gerald Callaghan reports

By Gerald Callaghan

20 Jun 2014

At the monthly eurozone meeting in Luxembourg, EU policymakers agreed that the pact provides enough time and flexibility for members to fix their budgets in order to boost economic growth.

The fiscal stability and growth pact, in its current form, limits government budget deficits to three per cent of GDP and public debt levels to 60 per cent.

On 19 June, before entering the meeting, German finance minister Wolfgang Schäuble offered no signs that he would agree to revising the pact's main provisions.

"We don't need to change the rules, we have to stick to them" - Wolfgang Schäuble

"We don't need to change the rules, we have to stick to them," he said at the press conference following the meeting, adding that "the existing rules provide enough flexibility."

"Solid financing and structural reforms are two necessary conditions for sustainable growth," he said.

Dutch finance minister Jeroen Dijsselbloem, who chairs the meeting of the eurozone's 18 finance ministers, agreed that the terms should remain the same for now. However, he insisted that ministers would re-assess rules on deficit and debt limits by the end of the year.

"All the ministers stressed the importance to stick to the rules as they are now," he said at the press conference. "At the end of the year... we will look at whether we can make them less complex".

Meanwhile, EU economic and monetary affairs commissioner Olli Rehn has said that governments must implement reforms first, before being afforded more time to cut their deficits to within EU limits.

"I would be in favour of looking into this interrelation between fiscal consolidation and structural reforms, but only so that we can first verify that structural reforms are really moving forward and then see if this would justify some extension in the correction deadline," Rehn said at the press conference.

Despite support from EU ministers, an IMF report presented by the fund's managing director Christine Lagarde urged ministers to simplify the pact, which had, it said, "become excessively complicated with multiple objectives and targets".

"There is a worry that the [stability and growth] framework discourages public investment," it added.

"There is a worry that the [stability and growth] framework discourages public investment" - IMF report

Opponents believe the pact's three per cent deficit limit enshrines austerity and, therefore, prevents governments from introducing stimulus measures to cushion the pain of recession and boost demand.

Italian prime minister Matteo Renzi has previously said he would to take a closer look at the pact, while starting a discussion on whether the rules should be changed or not.

Italy takes over the rotating six-month EU presidency in July and they will therefore set the agenda during that time.

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