After an emergency meeting of the 12 eurozone finance ministers of the EU yesterday, a last minute attempt to agree revisions to the contentious growth and stability pact have succeeded – subject to the approval of the European Council later this week.
But the agreement represents a huge cave-in to Germany, which has forced through its demand that the costs of unification should be taken into account when calculating its deficit. As this spending accounts for four percent of its GDP, this effectively drives a cart and a team of horses through the pact.
The agreement was reached after nearly 11 hours of talks and it remains an "agreement in principle", with some technical details to be clarified by Tuesday, before the European Council meets.
Austrian finance minister Karl-Heinz Grasser, who in a previous meeting on 8 March complained of “progress… but largely in the wrong direction”, entrered this meeting declaring that it would be "a bit of a joke" to exempt spending on an event that happened 15 years ago, after the fall of the Berlin Wall.
Part of the deal seems to be an agreement by Schröder to give more powers to the EU commission in policing the pact, and it seems that Austria and the Netherlands are also insisting that Germany will only be able to invoke the "reunification get-out" if its deficit is only "slightly and temporarily" above 3 percent limit.
More details may emerge over the next few days and there is still scope for a major bust-up at the European Council, not least because France does not appear to have gained anything from the agreement – although this may simply be because the full deal has not yet been disclosed.
Either way, this makes a mockery of the EU's attempts to reign in the spending of its members and bodes ill for any sustained economic recovery. Still, as long as there is "progress", it does not seem to matter that it is in the wrong direction.