Commission to take finance ministers to court

THE European Commission, in an unprecedented move, is to take finance ministers to court for breaking treaty rules.

It says the ministers, having agreed that France and Germany were about to run illegal budget deficits of more than 3% of GDP for the third row in a year, should have taken action as laid down in the rules.

Instead, they let the union’s two largest economies off the hook and agreed they could implement their own prescriptions to bring their economies back into line with the Stability Pact rules designed to keep the eurozone stable.

The EC, announcing the decision in Strasbourg, said its appeal to the European Court of Justice in Luxembourg was purely on a procedural issue, but it is being interpreted as part of the continuing power play with the member States.

Ecofin Council president Charlie McCreevy simply noted the commission’s decision and said the next meeting of the ministers, which he will chair, will process the pact updates in the usual way.

The commission will ask the court to fast-track the hearing, which could take between three and six months and could leave Mr McCreevy having to deal with the outcome during his six months in the chair.

The 20-member commission agreed to refer the ministers’ decision taken last November 25 to court after a long and heated discussion when the six commissioners from France, Germany and Britain argued against the action.

In the end, no vote was called and the decision was taken by consensus. It also agreed to examine how the eurozone economy is governed and consider how to reform the Stability and Growth Pact.

Commission spokesman Gerassimos Thomas said the difficulty was that the ministers’ approach could be repeated by other Councils of Ministers. “We need clarification,” he said. Under the terms of the treaty, the EC gives its analysis and proposes measures for countries breaching Stability Pact rules.

If the ministers agree with the analysis, they are obliged to take the next proscribed step, which in the case of Germany and France, would bring them closer to being fined up to .5% of their GDP or a total of about €19 billion.

European Parliament president and economist Pat Cox said that while rules needed to be applied, it also required common sense.

The real challenge was to revise the pact’s rules, but he warned the EC step was risky. “My concern is that any legal wrangling does not drain vital political energy away from the reform process at a critical time,” he said.

The European Central Bank had cautioned against the commission taking the issue to court, but the response from the market and economic analysts last night was mixed.

Dresdner Kleinworth Wasserstein chief fixed income strategist Peter Fertig said: “The market has already largely discounted that the pact in the form that it has been is not very effective.

"That’s not at the front of markets’ minds. It is more developments in foreign exchange markets and expectations of monetary policy on both sides of the Atlantic.”