Print

Mail

wiki links

Value of EU's Stability and Growth Pact hotly debated

European Commission head Romano Prodi faced a grilling yesterday from the European parliament over his labelling of the euro zone's stability pact as "stupid."

The remarks sparked a storm of criticism, but are also fueling a growing debate about the Stability and Growth Pact, which underpins the single currency by imposing budgetary rigour on member states.

Question marks over the pact have multiplied notably as the two euro-zone powerhouses, France and Germany, are struggling to meet the deficit requirement.

Euro-MPs last week summoned Prodi to attend the parliamentary debate on the key pact, which he would normally attend, after his comments in the French newspaper Le Monde on Thursday.

The 1997 accord obliges the 12 euro-zone members to hold their public deficits to less than three percent of output and to strive for balanced public finances.

Prodi's comments on the pact, in an interview with Le Monde, were shockingly blunt.

"I know very well that the stability pact is stupid, just like all decisions that are rigid," he said.

Critics maintain that the agreement acts as a harmful constraint on economic growth.

Economic and Monetary Affairs Commissioner Pedro Solbes, who has appeared at odds with Prodi over the pact, was also among those invited to the debate in the Strasbourg parliament.

Solbes said he is in favor of more flexible conditions for the single currency.

"It isn't possible to live simply with rules given the complexity of the economy. You also need an authority to interpret all the varieties of the economy," he told France 1 radio, defending his "stupid" comments made to Le Monde.

Solbes, the man responsible for the pact, said after Prodi's original remarks, that the pact was "sufficiently flexible to allow to allow common sense economic policies."

But in response, Prodi said: "Flexibility means intelligence and the application of rules in a concrete case by an authority capable of doing so."

Germany's Bundesbank chief Ernst Welteke also attacked those who undermined the pact Sunday.

"Calling the pact into question is very dangerous, it undermines confidence in the euro. In the current crisis of confidence that is particularly harmful," he told the Bild daily.

EU Trade Commissioner Pascal Lamy has said the Stability and Growth Pact is a "crude" instrument that should be replaced.
This story has been viewed 1974 times.