European Union finance ministers on Sunday night agreed on sweeping plans to rewrite the EU’s stability and growth pact, clearing the way for flexible new fiscal rules to be agreed at a summit on Tuesday.
Under a breakthrough compromise deal, Germany would be able to cite the costs of its reunification as an excuse for breaking the European Union’s stability and growth pact.
What did the Germans give up?
In exchange, Mr Schröder will be asked to give up his campaign to curtail the role of the European Commission in policing the pact. Hardline defenders of the stability pact, including the Netherlands and Austria, won assurances that Germany would only be able to invoke the get-out clause if its deficit was “slightly and temporarily” above 3 per cent.
Clearly this is a victory for the German, French, and Italian ministers, who have led the charge to relax the 3-percent (of GDP) deficit limits. But not all are pleased. Commenting in the London Times Online,
Karl-Heinz Grasser, the Austrian Finance Minister, who opposed weakening euro rules, had described the compromise plan as a “huge joke”.
The Times Online article also reminds us of this threat:
Jean-Claude Trichet, President of the European Central Bank, had warned finance ministers that any weakening of the pact would undermine the euro. He implied that the bank would raise interest rates to compensate for such moves.
This could get interesting.
(Some related prior posts: Schröder's case, Trichet's warning, and why one learned observer thinks Trichet will cave.)