Finance ministers have put off action on growth pact breach, following French pledge to cut budget deficit
Denis Staunton
in Brussels
European Union finance ministers have postponed action on France's breach of the euro-zone's budget rules, following a promise by the French finance minister, Mr Francis Mer, to reduce his government's budget deficit further.
The ministers will consider the cases of France and Germany, which is also in breach of the Stability and Growth Pact, on November 24th.
Most ministers support a proposal by France and Germany to accept France's commitment to making extra cuts in its budget deficit without triggering the next stage of disciplinary measures that would impose a binding commitment to reduce the deficit.
The European Commission wants France to cut its deficit by 1 per cent in 2004 but the French budget makes provision for a cut of only 0.6 per cent. Mr Mer is now expected to promise a cut of up to 0.8 per cent.
The Commission, along with Austria and the Netherlands, are unhappy with the compromise and the Dutch finance minister, Mr Gerrit Zalm, warned that the pact's credibility would be threatened if France was allowed to have its way.
"That would be rather dramatic. One couldn't say that the pact is alive and kicking in that situation," he said.
Speaking in Berlin, the German chancellor, Mr Gerhard Schröder, defended the decision to apply a flexible interpretation of the pact's rules.
"In certain circumstances it's important and right to emphasise growth. The stability pact allows that. I am certain that at the next meeting in Brussels at the end of November a procedure will be found that will meet France's justified desire to achieve growth without abandoning stability," he said.
The Minister for Finance, Mr McCreevy, described the compromise as reasonable and rejected a suggestion that the pact was in crisis.
"It's a testing of the rules of the stability pact with a large country. It's ironic that the country that was really responsible for having these very strict rules was Germany and Germany was one of the first countries to fall foul of the rules.
"So it's interesting to see how these rules are going to apply when there's a big country at stake. It's a learning process for everybody but I don't regard it as a crisis. I regard it as part of the learning process and the evolution of the rules," he said.
Mr McCreevy described the atmosphere at yesterday's meeting as "very pleasant" but declined to comment on the mood at a meeting of euro-zone ministers on Monday evening.
He said that, despite the fact that the EU's biggest economies were in breach of the pact for a third year in succession, the rules were unlikely to be changed within the next three years.
"Looking forward 20 years I wouldn't be able to say what the rules will be like, but looking forward over the next two or three years I cannot see a major change in the rules of the stability pact because I've been around at the time that we tried to make some changes and found it impossible to do so.
"Over the next two or three years, I don't see a great push to change them," he said.
Commenting on a warning by the Commission that a house price bubble in Ireland and other EU countries could damage economic growth, Mr McCreevy predicted that the Irish housing market would regularise itself unproblematically.
"In my view, the rental market in Dublin has gone back into sync and there's downward pressure on rental prices. Why? There's plenty of supply and when there's plenty of supply the buyer becomes king or queen and they'll push down the prices," he said.
