The fudge is served

As flagged up last Tuesday, the EU commission has laboured mightily and brought forth a new mouse in the form of its proposals for a new interpretation of the notorious growth and stability pact.

What it amounts to, as predicted, is a redefinition of the reference period over which a member state is required to balance its books, before it is regarded as delinquent.

Monetary affairs commissioner Joaquin Almunia announced the package this afternoon, stating that were would be “tailored” budget-cutting guidelines addressed to each member state, geared to their specific economic circumstances.

Member states with lower national debt, and those taking measures to reduce it, would be given more latitude on the current account deficit limit, originally set at three percent.

There are few illusions, however, that this is anything other than a face-saving fudge. The news agency Bloomberg cites Holger Schmieding, an economist at Bank of America in London, who declared that, "the political reality is that Germany and France simply will not play by the old rules," adding, "The EU commission is trying to save as much of the stability pact as possible."

Nevertheless, the face-saving formula comes not a moment too soon. Six countries - Italy, the Netherlands, Greece and Portugal, plus Germany and France – are expected to post deficits above the three percent limit in 2004.