Wednesday, May 12, 2004

"Sensible" budget deficit rules, i.e. none at all

Italy is also about to exceed the EU budget deficit rules, which state that this should not exceed 3 per cent. This year Italy will have a deficit of 3.2 per cent, despite an official prediction that she will stay within the allowed limits. By 2005 the deficit is likely to rise to 4 per cent.

Six of the twelve eurozone countries have exceeded the limit. These include Germany and France.

The Commission urged the assembled finance ministers to send Italy a letter of reprimand and, to be fair, that is what the rules say. The Commission, as guardian of rules and regulations as well as treaties is in the right. Alas, for good intentions. The finance ministers have decided to postpone the letter till the next meeting in early July, though why they think the situation should change by then is a mystery.

The odd thing is that all the finance ministers, the Italian Giulio Tremonti, the Irish Charlie McCreevy, the German Hans Eichel, and presumably others, all say that they consider the rules and the Growth and Stability Pact to be very good ideas and they all intend to abide by them. But not yet, they explain, unconsciously echoing St Augustine.

Hans Eichel, for instance, acknowledged that Germany will probably break the rules for the fourth year running. In the light of all this, he has called for a “sensible” interpretation of the rules. It looks like the only interpretation that would be sensible enough for him is to allow them all to lapse for the western countries but to be called into effect when the newcomers need to be chastised.

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