The European Commission and the European Central Bank (ECB) have condemned in the harshest terms a decision by EU finance ministers to spare Germany and France from disciplinary action under the Stability and Growth Pact.
After an emergency telephone conference, the governing council of the ECB issued a statement warning of "serious dangers" created by the ministers' refusal to endorse the tougher action recommended by the Commission.
"The failure to go along with the rules and procedures foreseen in the Stability and Growth Pact risks undermining the credibility of the institutional framework and the confidence in sound public finances of member states across the euro area," it said.
EU finance ministers agreed yesterday to give France and Germany until the end of 2005 to bring their budget deficits below 3 per cent of GDP. The ministers rejected a call by the Commission to move against the two countries using Article 104 (9) of the EU Treaty, which could have triggered financial sanctions if Paris and Berlin failed to comply.
The governing council urged France and Germany to fulfil their commitment to bring their budget deficits below 3 per cent of GDP by the end of 2005 and hinted that failure to take timely action could provoke a rise in interest rates.
The Commission, which sought until the early hours of yesterday morning to persuade ministers to take tougher action, suggested that the ministers' action could be illegal.
"The Commission deeply regrets that the Eurogroup has not followed the spirit and the rules of the treaty and the Stability and Growth Pact that were agreed unanimously by all member-states. . .
"By refraining from adopting the appropriate recommendations under the provisions of the treaty, the council disregards the legal rules enshrined in the treaty and pact regulations," the Commission said in a statement.
The Minister for Finance, Mr McCreevy, defended yesterday's decision. "Politics is not about just having a legal basis for doing certain things. Politics is about the betterment of the peoples in the regions one represents and what the member-states have done is to ensure that," he said.
In their council conclusions, the ministers called on France to cut its budget deficit by 0.8 per cent in 2004 and by at least 0.6 per cent in 2005, in order to bring the deficit below 3 per cent of GDP. They called on Germany to cut its budget deficit by 0.6 per cent in 2004 and by at least 0.5 per cent in 2005.
The ministers state that they are ready to move to a tougher procedure if France or Germany fails to act in accordance with their commitments.
The German finance minister, Mr Hans Eichel, described yesterday's decision as sensible and his French counterpart, Mr Francis Mer, said it imposed discipline without suffocating growth.
