France and Germany could face court action

The European Commission will decide tomorrow whether to take EU governments to court for letting France and Germany break the rules running the single currency.

Ireland, now holding the EU presidency, has called for a “period of reflection” before any drastic action is taken.

But the Commission is furious over a a decision by EU finance ministers effectively to suspend the Stability and Growth Pact rather than trigger massive fines against Paris and Berlin.

Both governments have fallen foul of the strict budget deficit limits imposed by the Pact to keep eurozone economies in check.

Ironically Germany insisted on the rules, thinking the weaker economies needed discipline.

But when Germany itself, and then France, ran into trouble, other governments rallied round and gave them more time to reduce government debt rather than follow the Pact rules and face sanctions.

The Commission’s lawyers have said there is a legal case against the member states.

And economics Commissioner Pedro Solbes is urging action in the European Court of Justice to restore the integrity of the Pact and the single currency.

Some of the smaller EU governments are happy for the dispute to go to court too, arguing that of Germany and France are let off the hook, it amounts to one economic law for the powerful EU countries and another for the rest.

Conservative MEP and finance spokesman in the European Parliament Theresa Villiers said:

“Surely this must be the end of the Stability Pact.

“Why should any country comply with it, when the two biggest Euroland economies are flouting it and getting off scot-free?

“This is also another blow to the credibility of the euro. The Pact was billed as an essential way to make the euro work – now it is coming apart at the seams.”

European Parliament President Pat Cox has justified the decision to go easy on the French and Germans, saying sanctions might have been counter-productive:

“The judgment the finance ministers had to make was whether this is the right moment to take action against one member state emerging from a recession and another which is not firing on all cylinders. I have some doubts – it’s like kicking a dog when it’s down.”

A Commission spokesman said that if legal action was pursued the Commission would ask for a swift decision from the European Court.

If the judges did overturn the decision to not to use the Pact’s sanctions, Paris and Berlin would once more be under threat of fines.

Proposed Commission changes to give the Pact more flexibility are on the way in any case – but one EU official said that did not alter the principle on which the Commission is considering going to court.