Europe's highest court ruled on Tuesday that Germany and France should not have been allowed to flout the fiscal rules that underpin the shared euro currency, even as a growing number of Europeans are questioning whether those rules make much sense.
The Court of Justice in Luxembourg said the finance ministers of the EU's member nations erred in November when they voted to give Germany and France more time to reduce their budget deficits, which were larger than the rules allowed.
The ministers acted after the European Commission, the union's executive body, had recommended tougher treatment of the two countries, including the possibility of fines.
Though the decision was a victory for Brussels in its perennial power struggle with Europe's national capitals, it does little to resolve the larger question of how to enforce fiscal discipline among the 12 countries that now use the euro.
Few experts say they expect the French or German governments to face sanctions any time soon.
Indeed, French and Germans officials praised the court's judgment on Tuesday, noting that it had found fault with the way the ministers had handled the matter rather than the substance of the outcome.
With France and Germany in clear violation of the fiscal rules, and four others -- Italy, Greece, Portugal and the Netherlands -- in danger of joining them, the agreement underpinning the euro, known as the Stability and Growth Pact, has long since lost its teeth.
"It's clear that this is a political process," said Joerg Kraemer, the chief strategist at Invesco, an asset management firm in Frankfurt. "People in the market know that the stability pact is, de facto, dead."
A debate over how to reform the rules is gathering steam in Europe, with some critics calling for much of the pact to be discarded, while others say it should be kept but applied more selectively.
The European Central Bank said in a statement that there was no need for any changes in the pact.
In the end, officials and outside experts predicted, the European Commission will probably retain the rules but water them down significantly, responding to critics who say they impose overly strict limits on national budgets that fail to allow for the ups and downs of the economic cycle. That prospect would cheer officials in France and Germany, who claimed last year they could not embark on stringent cost-cutting at a time when their econo-mies were limping out of recession.
France flatly refused the commission's demand that it bring its deficit below 3 percent of its GDP, the ceiling stipulated in the Maastricht Treaty that created the monetary union. Germany, though less defiant, also failed to bring its deficit into compliance.
German Finance Minister Hans Eichel said the ruling by the court was "very wise."
"Finance ministers are, and remain, the masters of the excessive deficit procedure," he told the Deutsche Press Agency.
Eichel's French counterpart, Nicolas Sarkozy, praised the court's insistence on proper procedure in Brussels. The decision "reminds us that common European discipline must be scrupulously respected by everyone," Sarkozy said, adding that he could be counted on to rein in spending in an effort to reduce his country's deficit.
Even at the commission, which brought the lawsuit against the finance ministers in January, the talk on Tuesday was of finding common ground. The incoming president, Jose Manuel Durao Barroso, the prime minister of Portugal, said he hoped to "make the pact more credible without rewriting it."
It is not clear how he will do that. The heart of the dispute with the Germans and the French is the 3 percent limit on deficits, a provision that will also be part of the new European constitution.
Some experts said the commission could be more flexible in imposing the rules during economic downturns. But that could open the door to chronic high deficits if Brussels is not more diligent about pressing governments to curb the red ink when times are prosperous. One of the flaws in the stability pact, critics said, was that it put no pressure on France and Germany to curb spending during 1999 and 2000, when their economies were growing robustly.
Deutsche Bank projects that Germany's deficit will be 3.7 percent of GDP this year and 3.4 percent next year, and that France's will be 3.8 percent this year and 3.3 percent next year.
Europe's newly appointed commissioner for monetary affairs, Joaquin Almunia, said he would consider giving countries more time to reduce deficits if they agreed to undertake broader economic reforms. But any move to loosen the fiscal rules could draw protests from smaller countries.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2