Pact in crisis as big two go unpunished
Most of Europe's finance minister including Charlie McCreevy voted not to fine the EU's two largest countries for breaching the rules of the pact yesterday, leaving its credibility in tatters according to some commentators.
The row immediately impacted on the price of the euro against the dollar on international markets and has led to fears of inflation and increased interest rates.
The European Central Bank governor Jean-Claud Trichet who has warned of the need for the pact to be supported took the unusual step of holding a teleconference with his governors yesterday.
The failure to sanction France and Germany infuriated a number of countries the Netherlands, Austria, Finland, Belgium, Greece and Sweden in particular, while the Commission accused the Council of flouting the rules of the treaty underpinning the European Union and the pact.
"Today, we have conclusions that are in unchartered territory and not necessarily within the rules, and we cannot go along with them", Commission spokesperson Gerassimos Thomas said.
Today the Commission will discuss what action to take next. They are expected to consider referring the issue to the Court of Justice and make new recommendations against France and Germany.
The pact, designed to protect the stability of the eurozone economies, says that if a country's budget is 3% in the red for three years in a row they face sanctions that include massive fines.
The procedure states that the Commission makes the recommendation and that the Council of Ministers enforces it.
But after a stormy meeting of the 12 eurozone finance ministers in Brussels that lasted almost 11 hours and ended shortly after 3.30am on Tuesday morning, France and Germany were let off the hook.
The Netherlands, Austria, Finland and Spain voted against it.
Spending cuts of about €6 billion recommended by the Commission were left in abeyance and instead both countries were given targets almost identical to what they had proposed to do themselves.
Mr McCreevy, who earlier this month made his position known, said the result was a triumph of substance over procedure.
He insisted the pact was not damaged or dead but had in fact been saved by the Council's decision.
He described the Commission's position as utopian and said the decision had been a political one to ensure the betterment of the regions and of the people.
"Politics is not just about the legal basis," he said.
However, other countries saw it differently. The Finnish minister described it as "an ugly show", while the Swedish minister Gunnar Lund said they had devised new rules and created a precedence which was worrying.
"They have shown a lack of respect for mutually agreed rules," he said.
The ministers' action was supported by European Parliament President Pat Cox who said: "Imposing stringent conditions on such a huge proportion of the European economy, with cuts in spending and higher taxes is unlikely to increase growth."
The German Finance Minister Hans Eichel said he was pleased with the outcome as was the French minister Francis Mer.
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