Thursday, May 13, 2004

New pupils are doing well

In particular, the new member states of the EU have learned from their elders, if not betters, how to fudge statements about the budget deficit. During the very first finance ministers’ meeting after the champagne corks stopped popping Andrzej Raczko, the Polish Minister, said: “It is important how a country plans to lower its deficit and not what this deficit is.” Quite so.

Of course that is not exactly what the Growth and Stability Pact said but who’s counting or, for that matter, reading the text of the Pact? Was it not a German government spokesman who, with singular lack of originality, said that it must not become a “Stagnation Pact”? The word the OECD used to describe the economy of Continental Europe and Germany in particular, was “sluggish”. “Stagnant” will presumably come next year.

Then there is Siim Kallas, Estonian Commissioner, a man whose political past is dubious enough to have prompted several parties and groupings in the European Parliament to raise questions, who presented the Commission’s report on the new members together with the also new Economics Commissioner Joaquin Alumnia (though he is new only because his predecessor, Pedro Solbes, decided to desert the SS Commission and sign on with the newly launched SS Zapatero Government).

Mr Kallas spoke of the need to enforce budget rules strictly. “A balanced budget is very good for society," he said. "It leads to things every European citizen wants: stability, growth and security." Indeed so. Whether the Growth and Stability Pact leads to that, remains doubtful.

What brought all this and much more sanctimonious outpouring is the not unexpected news that the new entrants into the EU are well above the 3 per cent limit of budgetary deficit. In 2003, Poland's deficit was 4.1 per cent of GDP, the Czech Republic's 12.9 per cent and Hungary's 5.9 per cent. Cyprus had a shortfall of 6.3 per cent of GDP while Slovakia and Malta ran deficits of 3.6 per cent and 9.7 per cent of GDP respectively.

The Commission's official forecasts, which were last updated in April, predict all six countries will continue to top the EU's deficit limit this year and next, though the shortfalls are seen narrowing over that period. A number of these countries see their future in the euro and wish to be part of it by 2010, possibly hoping that by that time the world economy will be buoyant enough to carry even the eurozone countries along.

The new members were rapped over the budgets as the Daily Telegraph put it, and told to come back next time with coherent plans as to how they intend to lower those deficits.

Curiously enough, the same warning was not given in quite such a strong form to France or Germany, both of whom are likely to register a higher than 3 per cent deficit for the third and fourth year running. And at the same meeting of Finance Ministers that the report on the new member states was delivered, it was decided in the teeth of the Commission’s objections not to chastise Italy, whose deficit is over the supposed limit and is set to grow.

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