[A-List] EU stability & growth pact: UK intervention

["Michael Keaney" <michael.keaney@xxxxxx>]

Brown has blueprint for pact reform

Better way unlikely to sway EU ministers

Tuesday November 5, 2002
The Guardian

It was always the triumph of hope over experience to imagine that EU finance
ministers would come up with the necessary reforms to the discredited
stability and growth pact when they meet in Brussels today. That is not the
way European policymaking works.

There are five clear stages in coping with the pact's problems. Stage one is
denial. Stage two is to admit that there are short-term problems caused by
the failings of individual countries but no systemic weaknesses. Stage three
is to try muddling through, administering some sticking plaster in the hope
that that will solve the problem. Phase four is to say that more drastic
remedies are necessary, which involves giving more power to the European
commission so that it can discipline recalcitrant governments. Phase five is
to try to salvage something from the wreckage by belatedly implementing the
reforms that should have been tried in the first place.

The EU is somewhere between phases two and three. With the commission now
forecasting that Germany's deficit will be 3.7% of GDP this year, the denial
phase is over. The first country to feel the heat, however, is unlikely to
be Germany, but Portugal, which is also on course to run a budget deficit
well in excess of 3% of GDP. This is called picking off the weakest kid in
the playground first; the British bulldog principle of policymaking.

Changes to the pact, when they eventually come, will involve looking at
deficits over the course of an economic cycle rather than year-by-year. This
will not eradicate the pact's deflationary bias, since it would still
prevent countries, such as Britain, which have low levels of public debt
from borrowing to invest in long-term capital projects.

While it would be simple for Gordon Brown to offer a blueprint for reform of
the pact at today's meeting, it is politically inconceivable that the
eurozone countries would admit that a country not even a member of the club
has a better way of doing things. Even though, quite clearly, it has.