Deal on euro rules reforms reached

EU Finance Ministers late yesterday night reached an eleventh-hour compromise deal to reformulate EU budget deficit rules, a key element of the so-called Stability and Growth Pact - the rules underpinning the euro.

All 25 EU finance ministers, including Prime Minister Lawrence Gonzi, yesterday met for an 11-hour marathon Finance Ministers' meeting (Ecofin), aimed at brokering a deal on the revision of the pact, just two days before the 25 EU heads of state meet to discuss economic affairs.

Discussions over the thorny issue had been deadlocked for months.

Speaking to The Times at the end of the meeting, a few minutes before midnight, Dr Gonzi confirmed that a deal was reached and said Malta was extremely satisfied with the agreement.

"Malta always maintained its position for the need of strong EU rules in order to have a strong economy. The fact that the crucial criteria, that a deficit not exceeding three per cent of GDP and that national debt levels should not exceed 60 per cent of GDP remained intact, shows that the EU will be maintaining its strong pact."

The Prime Minister stressed, however, that the new deal will now start taking into consideration the particularities of economic reforms a member state will be going through, particularly reforms connected with pensions.

Dr Gonzi said this is very important in view of the fact that Malta also needs to carry out such reforms.

Commission sources told The Times that member states rejected Germany's long-standing demand that its massive German unification payments be seen as a valid reason to violate the stability pact's austerity rules.

The sources, however, added that "there is an agreement by the finance ministers to consider 'European unification' costs as a credible reason to overshoot the three per cent deficit target."

In that case a government may post a budget gap of 3.25 per cent of GDP, but only "temporarily," the sources said.

The sources added that key to the agreed amendments is the so-called "excessive deficit procedure," triggered when a country's deficit exceeds three per cent of GDP, allowing a series of warnings and ultimately the threat of huge fines.

The deal includes the possibility that, depending on a particular assesment, the Commission may grant a further year to a member state in order to get in line with the pact's rules. Until now, a member state had three years to get in line that can now be extended to four.

The Prime Minister told The Times that the fourth year is not automatic and will only be granted after a recomendation by the Commission.

During the Ecofin meeting, Dr Gonzi was accompanied by Parliamentary Secretary Tonio Fenech.