There is broad agreement across the political spectrum that a renewed pact would enable Europe to achieve ambitious growth objectives set out in the Lisbon process, writes Ruairí Quinn.
Followers of Irish sport will recall an incident that was reported nationally some years ago. At the end of a disputed county fixture, irate supporters of the local team, roughed up the referee and locked him in the boot of his car.
Pedro Solbes, the EU Commissioner for Economic and Monetary Affairs, must have felt a bit like the referee when he witnessed the finance ministers of the euro group kick the Stability and Growth Pact around the council chamber in Brussels on the evening of November 24th, before the formal Ecofin meeting the following day.
Despite repeated warnings in public and no doubt intense communications in private, Paris and Berlin had been shown the yellow card. They were clearly offside and in breach of the pact. Their national budgets had a 3 per cent deficit of GDP and they had not taken the necessary corrective action. Only four member-states came to the assistance of the referee. Austria, Finland, the Netherlands and Spain voted to support the Commissioner.
Ireland, inexplicably did not, thereby helping to undermine the authority of the Commission. The centre of political gravity moved from the community method of decision making to old-style inter-governmentalism. There was a lot of comment in the newspapers the following day, more so in continental Europe than in Britain and Ireland, but within 48 hours, the story had been superseded.
However, before he left to attend the European Council meeting in December, the Minister for Finance, Charlie McCreevy, attempted to explain what had happened when he met the Oireachtas Committee on European Affairs. In essence, he claimed there was no real difference between the Commission and the majority of finance ministers. Both wanted the same outcome, a year's extra time for France and Germany. However, the reality is that the majority of ministers deliberately took an informal political decision, thereby ignoring the explicit rules of Article 104 of the treaty.
So what is all the fuss about? Well, rules do matter and in something as important as a shared common currency between 12 sovereign member-states the way those rules are applied concerns every existing member-state and the wider world. Many Swedes, the majority of whom voted last September not to join the single currency, cited the lax application of the existing rules as one of their concerns. The 10 candidate countries, who will be obliged to join the currency when they become eligible, are now looking at different applications of the rules for a small country, such as Portugal, as against big countries such as Germany and France.
The collapse of the intergovernmental conference on the new European constitutional treaty negotiations should be a reality check for the European finance ministers. A future referendum in the Netherlands on the new treaty will not be passed if the pact is not put back on track. If they want to consolidate the operation of the single currency and ensure its viable future, then they cannot ignore the verdicts of many financial commentators. William Keegan in the Observer (November 30th) asserted "that the embarrassing collapse of the Stability and Growth Pact affords an opportunity for a sensible rethink of an inadvisably restrictive policy".
One of the conclusions of the recent European Council provides an opportunity for the shape of the pact to be redesigned. The section on European Action for Growth invites the European Investment Bank to examine more creative ways to get additional capital monies into public infrastructural projects. It also asks that Eurostat, the central statistics commission of the Union, categorises such expenditure in a more flexible manner. This was one of the constraints Mr McCreevy referred to when he claimed the rules of the pact prevented him and the Government from spending more money on closing our huge infrastructural deficit.
As Ireland takes on the presidency on January 1st, 2004, the future of the pact will be on the agenda. If the Commission decides to ask the European Court in Luxembourg to rule on the legitimacy of Ecofin's decision, it could very well become centre stage. I suspect that if Pedro Solbes believes the court will offer a ruling which reinforces the authority of the Commission against the informal political decision the ministers reached, he will press for the court to offer its ruling. At that point, the Irish presidency should be ready to respond constructively. There is broad agreement across the political spectrum that the pact should be redesigned to enable Europe to achieve the ambitious growth objectives set out in the Lisbon process.
When the heads of government come to review the Lisbon process in March, they will be told in no uncertain terms that we will not reach the targets that were set for the Union to become the most progressive, dynamic, knowledge-based economy in the world by 2010. That was one of the concerns that led to the European Action for Growth reference that arose from the recent Council. Ireland now has both an obligation and perhaps an unique opportunity to prepare for a redesign of the pact, which perhaps now should be renamed the Growth and Stability Pact. This would more accurately reflect Europe's current macro-economic financial and fiscal needs.
Ruairí Quinn, Labour TD for Dublin South East, as Minister for Finance in 1996 during the last Irish EU presidency, was one of the key architects of the Stability and Growth Pact