On November 25th 2003 a majority of Europe’s Finance Ministers refused to authorise the financial punishment of France and Germany for exceeding the 3% budget deficit target specified in the Stability and Growth Pact (SGP). More seriously still, it is France and Germany’s refusal to accept the Commission’s supervision of their budgetary policy that lies behind this decision. Here are two countries that have traditionally been Europe’s engine but which are now turning into its detractors and refusing to accept the existence of control at a European level. According to Dominique Moisi it is a ‘sin of the spirit’ (1).
‘A good opportunity to keep quiet'
It is firstly a sin against European construction. Europe does not recognise its own institutions, its own history, its own geography or its own interests; it cannot get beyond nationalism, most notably on the subject of defence. If Europe no longer respects its own rules, what are we left with? There is also the little matter of the serious psychological error made regarding the candidate countries. You need to have visited the countries of Central Europe in order to understand how much they fear the domination of other powers. Their history and their wealth, which is considerably less than old Europe’s, make them apprehensive, understandably, about unequal relationships of power. Everything leads the ten candidate countries to believe that they will not be considered as equals. The membership treaties are already shocking in terms of equity: farmers in the new Member States will only receive 25% of what farmers in the existing Member States will receive; whereas in all previous enlargements new Members benefited from a transition period with regards to their contribution to the Community budget, this time around the 10 candidate countries will have to finance part of the budget from day one despite the serious financial difficulties this will cause them. Not to mention Chirac’s blunder when he reproached the candidate countries for missing a good opportunity to keep quiet over the war in Iraq. EcoFin’s decision (2) has made all this worse. The attitude adopted regarding France and Germany has been a lot more flexible and tolerant than that shown to other Member States. The SGP does not have any legal basis for such a degree of flexibility. In short, ‘Europe’s nucleus’ has demonstrated that anything can be achieved when put under political pressure. It has proved that the big and the small countries of Europe are treated differently. That is the immediate conclusion reached by all the Central European governments. How can they be made to adopt the Constitutional project following such a precedent?
Save the Pact!
Well, if consensus reigns with regard to reforming the Pact, it also reigns with regard to the necessity of keeping it. The Pact is absolutely necessary to avoid risks of ‘infection’, i.e. other countries ‘going it alone’. Budgetary discipline is needed to avoid a situation where one Member State is not forced by the others to look again at its budgetary inconsistency. It is also crucial in terms of our ageing populations. How can a public debt which is continuing to grow be financed by an active population whose numbers are continuing to fall?
By refusing to apply the rules of the Pact, France and Germany are destroying it. The Pact does need to be reformed but not by forceful opposition. France and Germany’s budget deficit is neither a new or unforeseeable phenomenon. Member States should have been able to predict the decision made on November 25th and they should have been able to reform the Pact before it happened.
The French and German governments have rightly pleaded that it would be detrimental to their economies, and to the economies of the 25 Member States, to adopt a restrictive budgetary policy just at the very moment when economic growth might recover. According to Raffarin, economic recovery must not be stifled. Nevertheless, France and Germany could have reduced their budget deficit during earlier economic recoveries in their respective countries.
The current situation could have been avoided with sufficient foresight or simply if these countries had respected the Pact. The Pact requires Member States to maintain an almost balanced budgetary situation or even a surplus one so that they can benefit from a sufficient margin for budgetary manoeuvre during times of recession. This is what economics refers to as economic stabilisers. France and Germany have not respected this principle. Therefore, it is not the Pact that is guilty but their inconsistency.
(1) Professor at the College of Europe in Natolin and Director of the French Institute for International Relations.
(2) The EU’s Council of Economic and Finance Ministers.