Prodi stands by attack on euro rules

EC President Romano Prodi, under fire for calling the budgetary rules behind the euro “stupid,” tonight asked for more power to enforce them in a more “intelligent” way.

Called to explain himself before the European Parliament in Strasbourg, Prodi stood by his characterisation of the so-called stability pact as “stupid.”

He praised the rules for successfully introducing a ”culture of stability” in the euro-zone, and said he remained a “firm believer” in their value for restraining government overspending that could undermine the fledgling currency.

But he insisted he did not want to “just enforce rules blindly,” especially given the serious downturn in the global economy since they were adopted five years ago.

“Enforcing the pact inflexibly and dogmatically, regardless of changing circumstances – that is what I called – and still call – stupid,” he said.

With Germany, France, Italy and Portugal in danger of violating their obligations to keep deficits under control this year, Prodi said the Commission would have been ”accused of endangering jobs and growth” if it tried to ”impose objectives that were no longer realistic.”

It has proposed extending the deadline for a balanced budget by two years, to 2006, and to take economic cycles more into account when calculating budget deficits.

His economics affairs commissioner, Pedro Solbes, told Parliament that the 12 countries using the euro must still respect the deficit cap of 3% of gross domestic product.

“Any breaching of threshold requires swift corrective action,” Solbes said.

However, any potential sanctions would have to be approved by ministers from the 15 EU governments.

Noting that Berlin managed to block the Commission’s attempt early this year to send an early warning over its spending plans, Prodi called for giving the Commission the authority to adapt and enforce the rules on its own as an ”impartial referee.”

“We need an authority that has the power to give guidance to the system in a way that is both rigorous and intelligent, and bearing the complexity of our economies in mind,” he said.

The Commission, the guardian of EU treaties, has made such proposals to a convention working on drafting a constitution for the EU, to be presented for debate in 2003.

The head of the biggest parliamentary group, German conservative Hans-Gert Poettering, insisted the rules were flexible enough already and blasted Prodi for muddying the waters.

“The political impression was given that doors are open to indebtedness once again in Europe,” he said. “More indebtedness means more inflation, more inflation means higher interest rates and higher interest rates means our economy can invest less.”

The Taxpayers Association of Europe, a continent-wide federation of anti-tax groups, warned that reopening discussion of the rules might encourage those countries ”to even make more debts.

“Instead, budgetary discipline and less spending are absolutely necessary” for economic growth, it said in a statement.

Yet many economists warn that too strict application of the rules hampers the ability of governments to respond to economic downturns.

In this week’s issue of Der Spiegel magazine, German Foreign Minister Joschka Fischer said the pact “lacks inner flexibility” because it was drafted during the ”supposedly everlasting boom of the ’90s.”

“When the economy is bad, we must be in a position to increase debt,” Fischer said in an interview for the weekly’s latest edition. “When it’s good, we will offset that accordingly.”

French Prime Minister Jean-Pierre Raffarin, a conservative, took a similar tack after meeting Prodi on Friday.

“What we want is that there be understanding, an intelligent approach toward different situations,” he said. “In exchange, Europe can count on the loyalty of France, the loyalty to respect our commitments.”

Raffarin urged Brussels to show an understanding for France’s economic priorities and the need to spur the economy, but vowed to respect commitments under the stability pact.