European Union finance ministers have postponed the adoption of this year's Broad Economic Policy Guidelines to avoid a row with France over its budget. The ministers agreed to discuss the guidelines, which must be approved formally by EU leaders, on the eve of the Seville summit later this month.
Paris was eager to avoid a budget discussion in the run-up to its National Assembly elections this weekend and on June 16th. President Jacques Chirac wants to postpone France's commitment to bringing its budget close to balance from 2004 to 2007 in order to fund tax cuts.
The Economic Affairs Commissioner, Mr Pedro Solbes, insists that the date of 2004 must be kept in order to preserve the credibility of the EU's system of budget co-ordination. But the German Finance Minister, Mr Hans Eichel, yesterday said it was "completely understandable" to give a new government some breathing space.
Britain's Chancellor of the Exchequer, Mr Gordon Brown, suggested it was time to interpret the terms of the Stability and Growth Pact more flexibly and to distinguish between investment and consumption when calculating budget deficits.
"A lot of people now accept these are important points that need to be addressed," he said.
The ministers expressed satisfaction at the recent rise in the euro's value against the dollar, emphasising its positive effect on inflation rather than the difficulties it could cause for European exporters. Mr Eichel suggested that a buoyant euro could encourage the European Central Bank (ECB) to leave interest rates on hold when its governing council meets in Frankfurt tomorrow.
"Many companies have fixed their exchange rate, so I don't see any short-term problems for exports. At the same time it means that imports will be cheaper.
"When you look at what that means for inflation in the euro zone and in the biggest economy in the euro zone, in Germany, then this gives the ECB much less grounds for concern about price stability and that could have consequences for monetary policy," he said.
Earlier, the ministers increased the European Investment Bank's capital to €150 billion from €100 billion, allowing it to lend more money. But they told the bank the capital increase should last at least five years and said there should be fewer loans to big corporations.
Plans to free up Europe's two-trillion euro pension funds market got a boost when the ministers reached broad agreement on rules to allow funds to operate across borders.
Ending an 18-month-long impasse, ministers in principle backed a compromise saying that fund managers could market their product abroad, subject to minor investment restrictions. But due to Belgian reservations, formal endorsement is being postponed until an extraordinary meeting of finance ministers ahead of an EU summit in Seville on June 21st and 22nd.
France, which had wanted stronger safeguards for pensioners, said it was dropping its opposition, leaving Belgium isolated and clearing the way for full endorsement at the next meeting.Under the EU's weighted voting system, medium-size Belgium alone would not be able to hold up agreement on the bill.
Under the new rules, large firms will be able to offer their employees a single pan-EU occupational pension fund, a move that could save a multinational up to €40 million a year, mainly through reduced administrative costs. The bill, a cornerstone of Europe's plan to fully integrate its financial markets by 2005, allows fund managers to invest up to 70 per cent of their capital in shares, which have historically shown higher returns. - (Additional reporting: Reuters)
