EU Stability Pact Remains Intact, Commission Says

By BridgeNews The EU Commission said Sept. 10 that the Stability Pact -- which keeps the public finances of governments in the euro zone under control -- is not about to be abandoned in the face of slowing economic growth. The head of the EU Commission's press office, Jonathan Faull, told reporters, "The Stability Pact has to be complied with, particularly at a time when we are moving towards the introduction of the euro." However, Faull added, "In the short term there is a need to reflect on how it is working." Any future changes to the pact would have to be agreed "collectively," he said, in what appeared to be a sideswipe aimed at the three big member states in the zone, Germany, France, and Italy, whose finance ministers have been talking more openly of late about the possibility of reform of the pact. The slowdown in international economic growth has hit Germany particularly badly, and German Finance Minister Hans Eichel recently has been especially vocal in proposing changes to the pact (which limits government budget deficits to 3% of their GDP). Gerassimos Thomas, Commission spokesman on economic affairs, also stressed to reporters that the core of the pact itself was not under discussion, only its mechanics, for instance, how the "automatic stabilizers" could be used to counter slowing growth. Automatic stabilizers refer to the way in which spending on unemployment benefits rises and tax revenues fall at times of lower growth. In the past the EU has stuck to the view that only states that have achieved the medium-term goal of balance in their budgets can afford to let these 'stabilizers' play to their full extent. Commission officials confirmed that they now see growth slowing to "around 2%" this year from a previous estimate of 2.8% but said a rebound would begin in the fourth quarter and that 2002 would see a "modest recovery" in the zone.

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