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Verbatim report of proceedings
Wednesday, 8 June 2005 - Strasbourg OJ edition

21. Budget/Economy
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  President. The next item is the debate on the report by Othmar Karas, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a Council regulation amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (COM(2005)0154 C6-0119/2005 2005/0064(SYN)) (A6-0168/2005)

and the report by Othmar Karas, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a Council regulation amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (COM(2005)0155 C6-0120/2005 2005/0061(CNS)) (A6-0158/2005)

 
  
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  Joaquín Almunia, Member of the Commission. (ES) Mr President, ladies and gentlemen, on 26 April I had the pleasure of presenting to you in committee the modifications of the two Regulations providing the basis for the Stability and Growth Pact, which the College of Commissioners had approved on the 20th of that same month. Five weeks later we debated the reports by Mr Karas on the two regulations here in the plenary of the European Parliament, which is another demonstration of the good spirit of cooperation in which this Parliament has dealt with this important issue.

Over these few weeks, Parliament, the Council and we in the Commission have worked to complete the legislative process of reforming the Pact before the end of the Luxembourg Presidency. Following this first phase of examining the Commission’s proposals here in Parliament, we will be closer to an agreement, which could be reached –– and I hope it will be reached, if at all possible –– before the end of this month.

As I explained when I appeared in committee, our proposal, in accordance with the mandate of the European Council –– which, in turn, had supported the report of the Ecofin Council in March –– was restricted to the modifications of the Regulations that were strictly necessary in order to make them compatible with the Council’s agreement. Nevertheless, during the Council’s work, several Member States have argued that certain provisions should be included in the articles of the Regulation, such as, for example, the minimum annual fiscal adjustment of 0.5% of gross domestic product for countries in situations of excessive deficit or which need to move closer to a position of medium-term balance, or the explicit indication of other relevant factors.

These requests have prolonged the discussion on certain points on which there was already agreement in the Council by a few days. Fortunately, that agreement has been maintained, and according to my information, the Council’s working group has reached a final agreement on the issue today.

For its part, Parliament, by means of the report by Mr Karas, has expressed its concern about certain parameters that effect the credibility of multilateral budgetary surveillance, such as, for example, the quality of national fiscal statistics, the surveillance of debt or the reliability of macroeconomic forecasts. Parliament also, entirely legitimately, demands that it be regularly informed about excessive deficit procedures.

Ladies and gentlemen, I must tell you that the Commission has the same concerns as Parliament. Many of them have been taken up, or can be taken up, in some of the different components of the raft of legal texts regulating the coordination of economic policies in the Economic and Monetary Union. In the Commission’s view, certain other concerns expressed in some of the amendments in the reports by Mr Karas –– I am referring specifically to the surveillance of debt and regular information for Parliament on excessive deficit procedures –– may perfectly well be included in the Pact’s Regulations.

I said this just this week, on Monday, to the Eurogroup ministers, and I also made certain specific comments about how they could be taken up. It naturally falls to the Council to take these suggestions into consideration and it will then formally express its opinion next Monday, I believe.

In any event, I hope that our cooperation over recent weeks will be maintained until the end of the legislative procedure, in order to provide us, as soon as possible, with a renewed Stability and Growth Pact that is suited to the true economic dynamic of the Member States, from both political and legal points of view. The broad consensus relating to this reform is undoubtedly contributing to increasing the credibility of the Pact and demonstrating an unequivocal desire to promote healthier public finances as a condition necessary for sustained economic growth.

Just yesterday, right here in Strasbourg, the College of Commissioners adopted a report which recommends the initiation of an excessive deficit procedure with regard to a Member State, Italy. This is a further example of the effectiveness of the Stability and Growth Pact and a practical example of the spirit stemming from the reform of the Pact. It is also an indication that we must hold a discussion on the Pact’s operational rules as soon as possible and focus on the application of those rules and on the practical implementation of the Pact’s principles and guidelines.

Finally, Mr President, ladies and gentlemen, please allow me to stress that if one thing has been made clear by the recent votes against the draft European Constitution in France and the Netherlands, it is, I believe, the need to act and to achieve concrete results that bring tangible benefits in terms of the well-being of the citizens, beginning with employment and the strengthening of our social model. Hence the need to reach a final agreement over the coming weeks on the reform of the Pact, which will provide the foundations for decisive action by the European Union to make our economies more dynamic, to generate employment and to promote the sustainability of our levels of social cohesion.

The efforts of all the institutions –– Parliament, the Council and the Commission –– are moving in this direction and I am convinced that they will allow the modified regulations to be adopted before the end of this month and hence before the end of the Luxembourg Presidency.

 
  
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  Othmar Karas (PPE-DE), rapporteur. – (DE) Mr President, Commissioner, ladies and gentlemen, I should like to start by thanking those present for their excellent cooperation over recent years and during the preparation of the reports which we are debating here today. I intend to divide my comments into two parts. I have a few words to say on the Stability and Growth Pact, after which I shall turn my attention to the two regulations.

I see the approach taken by many of those in public office to the Stability and Growth Pact, which was included in the Treaty and signed in Amsterdam in 1997, as a clear example of the double standards of numerous politicians and the double game they play between domestic policy and Brussels. Unfortunately, it sometimes had to be used in the past as an excuse for the purpose of making popular statements at home, rather than being used to safeguard, in a spirit of solidarity, the acceptance of responsibility in the European Union.

I do not see the Stability and Growth Pact as an onerous duty or laborious task imposed by the European Union; on the contrary, it is a necessary coordination framework for national budgetary policy within the framework of monetary union, in which, while monetary policy is centralised, budgetary policy is a national matter. However, one thing is certain: the incentive structures for budgetary policy have changed with monetary union. Before, the penalties of the financial markets were clearer and stronger. If, for example, Italy pursued a shaky budgetary policy, interest on the financial markets rose instantly in anticipation of devaluation. Now governments do not have such a clear idea of what the financial markets make of poor budgetary policy. The continually criticised penalties and sanctions at the end of a long process therefore make sense, as the financial markets no longer have their previous powers.

Another point is that, unfortunately, it is not possible in monetary union to avoid one’s dues and pursue a budgetary policy with no sense of solidarity. That is why coordination is needed, in order to relieve the burden on monetary policy as a whole and make sure that interest rates stay low. It is for me beyond question that there should be a framework for budgetary policy in the Member States in monetary union, including for the purpose of preventing excessive debt and guaranteeing monetary stability.

In my view, the Stability Pact has a persistent design fault which, unfortunately, we cannot repair because it is in the Treaty. Unfortunately, the sinners can stand in judgment and, as they have done in the past, disregard what the Commission proposes in its capacity as guardian of the Treaties. This has led to a loss of trust and credibility and has, at times, been an expression of action with no sense of solidarity. Nonetheless, the euro is a success, as is the Stability and Growth Pact, for, without it, we would not have had the debates on the causes of deficit and the objectives of budgetary policy. It is also the basis of today's debate and the basis for the necessary reforms and adjustments being made.

I think it is a good thing that there is this framework, because it allows us to talk about deficits, the causes of deficits and the effects of deficits more intensively and in all openness. The public have more confidence in the euro than in many of the European Union’s other political projects.

However, the subject of today's debate is not the Stability Pact per se; it is the Commission's two proposals for regulations based on the decision taken by the European Council of 22 and 23 March. Both the majority in committee and I as rapporteur have taken note of the Council conclusions; we do not question these decisions, but we do judge these two proposals for regulations on the basis of principles and statements.

Our aim in our evaluation of the proposals for resolutions, was to bring about greater transparency, define rather than interpret and implement rather than avoid the decisions promised. We want greater transparency and better definitions.

Different procedures apply to these two regulations. Regulation No 1466/97 on the preventative aspects is governed by the cooperation procedure, while Regulation No 1467/97 on the excessive deficit procedure is governed by the consultation procedure with the Commission and the Council.

I should like to comment first on the regulation on the preventative aspects, in respect of which our committee made two central demands. Firstly, we want the quality of statistics to be improved; although Greece is not the only example of this, it is one with which we are all familiar. We feel that the quality of statistics at national and Community level must be ensured in order to guarantee the independence, integrity and accountability of both national statistical offices and Eurostat.

Secondly, we want the Commission not only to accept statistics, but also to conduct the dialogue in the Member State with the acting persons and institutions for the purpose of analysing the situation. We want stronger cooperation with the European Central Bank, because we cannot have a situation in which two different statistics are audited even though they are not comparable and possible contradictions result in questions from the Commission to the Member State. This cooperation, these comparisons, this interpretation and questions of cooperation between the European Central Bank and the Commission during the evaluation and comparison of statistics is important for us.

Secondly, we want medium-term budgetary objectives to be reviewed at least annually rather than regularly and for the general government debt ratio to be taken into account. For Regulation No 1467/97 on the excessive deficit procedure, we want a clear definition of exceptional factors, because the interpretation is too broad here and there is too little transparency. We want minimum European standards for budgetary planning to be created. The Commission should specify the parameters to the Member States, including for more uniform growth forecasting. We want the maximum deadline for regaining targets to be limited to three years from when the deficit occurred. We are also of the opinion that we need a specific list of relevant factors to be taken into account in the deficit procedure.

We accept the proposal as it stands. We want to make it more specific, accountable and credible and to reduce the margin for interpretation, so that it is easier to guarantee compliance, and we want to use these two regulations to give the Pact more credibility, win back confidence in it and hence respond to uncertainty among the people about the degree of seriousness with which European decisions are addressed.

 
  
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  Alexander Radwan, on behalf of the PPE-DE Group. – (DE) Mr President, Commissioner, we have often debated the Stability Pact here in the past. I thank the rapporteur for his report, which has built on the Council decision and finished the job, although I cannot hide the fact – and I say so directly – that I am not happy with the Council decision.

The precondition to a Stability and Growth Pact in an area with a single currency is that budgetary policies should converge, that they should not diverge too greatly. What is ultimately at stake is nothing other than the viability of our currency. We have had enough material for discussion over recent days about the views that many, including many in positions of political responsibility, take of this and, where possible, debates in previous months also made a further contribution.

We expect the Commission – as the rapporteur said – to set out exactly how the Council decision will be interpreted through the regulations in the future. What is meant by a ‘slight excess’ or a ‘temporary’ one? Which ranges will be accepted by the Commission in future? I hope and wait for the Commission to be strict here and we shall soon see how – with one eye on Italy – it approaches the new Pact and if it is worth the paper it is written on. I hope for the necessary strictness here. I also hope that the Commission will always put its finger on the actual problems.

Making correlations of this kind between unemployment and the Stability Pact is typical of the cheap policy being pursued in the nation states, and so we should not be surprised if a majority of people believed in the referenda what the nation states convey in Brussels: that the euro is responsible for unemployment and it would be best to get rid of it. The Commission has a huge responsibility not to give into these cheap arguments by the nation states and, if it comes down to it, to draw the necessary conclusions, take recourse to the Court of Justice where necessary and fight for the euro, a strong currency and the future, as did its predecessors.

This regulation and the Council decision do not make your life any easier. You will have even more responsibility for it. I wish you luck with it.

 
  
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  Robert Goebbels, on behalf of the PSE Group. – (FR) Mr President, Commissioner, ladies and gentlemen, the political situation in the European Union is too serious to get lost in legal wrangling over the Stability and Growth Pact. Twenty-five Heads of State or Government have recognised the necessity of applying the Stability and Growth Pact flexibly to allow adjustments to be made to economic cycles. They have adopted the Commission’s proposals without amendment, allowing the renewed pact to come into force quickly.

This House really should not try to be more Catholic than the Pope. We must stop elevating stability to dogma. Stability is necessary. No one can live on credit for ever, not even the Americans. All the same, they do take a more pragmatic approach to fiscal policy, they have both deficits and growth. The euro zone is sinking into stagnation.

Economic policy is not an exact science. A balanced budget is not enough for growth and job creation. The nations of Europe are in revolt because the European Union seems to have no other policy to offer than budget austerity. The EU needs to be jump started, we need to stimulate demand and encourage investment. So-called structural reforms that cut wage earners’ purchasing power will not fill manufacturers’ order books.

The Stability and Growth Pact was invented to prevent the states of the euro zone from having too much recourse to the capital market. Excessive public borrowing would push up interest rates, penalise private investors and be inflationary. The opposite has happened, however. Despite some states’ repeated breaches of the pact’s rules, the euro has become strong, inflation is still low and interest rates are at rock bottom. Moreover, the right seems to think that the Stability and Growth Pact has proved satisfactory despite the failings of a few major countries. The Group of the European People’s Party (Christian Democrats) and European Democrats and the Group of the Alliance of Liberals and Democrats for Europe, for example, adopted an amendment to my report on the broad economic policy guidelines saying: ‘Whereas the Stability and Growth Pact has contributed to maintaining a low level of inflation and historically low levels of interest rates ...’ This statement of faith, which ignores the role of the European Central Bank, apparently means that the breaches of the Stability and Growth Pact are not having the macroeconomic consequences we are hearing about.

Joking apart, however, the truth is that Europe’s economic situation is much better seen from outside. The world’s leading exporter and the biggest market for the rest of the world, the European Union is an economic giant that is still highly competitive. We cannot compete with the Chinese in tee-shirts and jeans, it is true, but our consumers have the benefit of this free boost to their purchasing power.

At the same time, Europe is moving forward in high value-added products. Take the motor industry, for example. While bonds issued by General Motors and Ford have been downgraded to junk bond level, the most recent statistics show that the European industry ranks first in the world for the number of cars produced: 17.2 million in Europe, 14.6 million of them in the Union of the Fifteen. The United States, the home of mass production, made only 4.5 million cars in 2003, and that includes a large number of Japanese cars manufactured there.

I could quote many more examples. My conclusion is clear. We must stop being pessimistic about Europe and bolster European confidence again, especially consumer confidence. The high savings rates in France, Germany and Italy denote an unjustified fear for the future. The conduct of economic policy demands stability, yes, but above all growth and also a psychological campaign to restore confidence. We must therefore send our people a much more optimistic message.

 
  
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  Margarita Starkevičiūtė, on behalf of the ALDE Group. (LT) The latest available data prove that public finances in the European Union are a well-kept secret, because we can be aware of some figures only later to find out that the true figures are quite different. This is a problem we should address irrespective of whether we are speaking of a small or a big country. Therefore, the proposals drawn up by the Commission are truly well-timed and necessary; however, as a representative of the Lithuanian state, which has always showed due diligence in implementing stringent fiscal policy and cost-saving measures at the expense of public services so as to execute all European Union requirements, I can only regret that we have learnt now that we possibly may not have had to implement those requirements. I am saying this to make you understand the reaction of new Members. I would like to emphasise that we should not expect any of our decisions or audit missions to ensure the transparency of public finances, reliability of data and the stability of finances directly. This should be done by the Member States themselves. They must achieve the actual implementation of all provisions. Therefore, I regret that the Code of Ethics has not been presented as yet and that the provisions of this reviewed version of the Stability and Growth Pact, as proposed, may not be observed. Why was it necessary to carry out the revision in view of the probability that we may not actually follow its new provisions? In general, the review of the Stability and Growth Pact is not a bad thing, as the experience in my country has shown that excessively stringent regulations curb growth and produce certain deflationary pressures. Moreover, structural reforms are impossible to implement without additional expenditures; however, we should not forget that all this can only be achieved via the coordination of economic policy, which should be future-oriented and secure. The European Union countries have no choice but to achieve financial stability and coordinate economic policy and measures, as we have mentioned during our morning discussion of the Constitution.

 
  
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  Alain Lipietz, on behalf of the Verts/ALE Group. (FR) Mr President, Commissioner, ladies and gentlemen, if there is one point on which I agree with the rapporteur, Mr Karas, it is that the proposed reform of the Stability and Growth Pact is still a very long way from giving Europe the capacity for economic governance that would allow it to satisfy all its citizens, both of this generation and those to come.

We are still a long way from the situation in the United States, a much more integrated federation than our own, where there is a significant federal budget, where there are rules for coordinating the budgets of the federal states, where budgetary policy and monetary policy are closely coordinated by Congress, where Congress is able to influence the options taken by the Chairman of the Federal Reserve and where the Federal Reserve’s objectives are wider than mere price stability.

Having said that, I believe that Commissioner Almunia’s proposals, from the previous term of office to their adoption by the Council in a more improved version, are an extremely positive step, and our Group will oppose the calls – from the Group of the European People’s Party (Christian Democrats) and European Democrats in particular – for backtracking to what the former Commission President called a more stupid pact. We think we have taken a significant step towards an intelligent pact.

If we may still make a contribution, simply by way of clarification, we suggest, in one of our amendments, both including education expenditure alongside research expenditure among the relevant factors that might justify an increase in the deficit, and making explicit mention of expenditure for the stability of the world’s ecological balance among the Union’s objectives. By this we mean expenditure for the implementation of the Kyoto Agreement.

 
  
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  Ilda Figueiredo, on behalf of the GUE/NGL Group. – (PT) Mr President, we have long been warning of the economic and social consequences of implementing the Stability and Growth Pact and of the risks of attaching absolute priority to nominal convergence, without taking account of the reality of each Member State, their differing levels of development and varying budgetary needs. The irrational nature of the criteria – public deficit below 3% of GDP, public debt below 60%, or indeed the subsequent objectives of achieving zero deficit – did not, and still does not, have any economic justification. We have always said that following this path would have an adverse effect on economic growth and jobs, and this is being borne out by reality.

Furthermore, the recession in countries with excessive deficit has been exacerbated by the possibility of fines, the pegging of the cohesion fund to the Stability and Growth Pact and constraints on public investment, and, by extension, on the proper implementation of the Structural Funds. This is one of the main factors behind the so-called ‘deterioration’ in the EU accounts, an issue that has come to the fore in recent years, and to which the over-valuation of the euro has certainly contributed.

Current economic and social reality bears out our stance. This was also the case when ex-President Prodi and other Members of his Commission controversially labelled the Stability and Growth Pact as ‘stupid’ and as having ‘medieval’ criteria. This is why we are holding this debate today. Furthermore, the Stability and Growth Pact would not otherwise have been revised, aside from the many cosmetic changes made at last year’s Spring European Council. It is now true that the Council and the Commission have repeatedly said that a degree of sanity needs to be restored to the Stability and Growth Pact, that relevant factors in the analysis of budgetary situations must be taken into account, and that the objective of zero deficit is not the be-all-and-end-all.

They insist, however, on maintaining the Stability and Growth Pact as a key instrument in achieving their neoliberal aims of undermining the public sector and the social responsibilities of the State, whilst promoting price stability, wage moderation and the privatisation, most worryingly, of social security.

The Council therefore reaffirms the aims of the Stability Pact and its benchmarks, and prevents any expenditure from being excluded from the deficit calculation.

What the Council adopted was simply the provision of more time, especially to countries guilty of non-compliance such as Germany and France. The room for interpretation on the basis of the Lisbon structural reforms – what is known as the ‘Lisbonisation’ of the Pact – is little more than a means of enabling the more powerful countries to make interpretations that suit their interests, and not intrinsically for us to have an à la carte Pact.

What we need is to suspend the Stability and Growth Pact and to make a clean break from the current economic guidelines – this was the clear message from the French and Dutch no votes on the so-called ‘European Constitution’ – in order to create the macro-economic conditions to revitalise the economy, to stimulate job creation and to work proactively to combat growing unemployment and high poverty and inequality levels in the EU.

 
  
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  John Whittaker, on behalf of the IND/DEM Group. Mr President, I do not know why we are having this debate. Mr Karas acknowledges that the Stability Pact relies on Member States disciplining themselves. He needs to go a step further in deducing that, for that very reason, the pact cannot work; it never could work. So I regret that his well-intentioned attempts to try and make it work by tightening definitions will be in vain.

Rather than pretending that fiscal discipline can be achieved, we should consider the consequences when it is not achieved. Let me focus on Italy, where the deficit has now been shown to have been above the 3% margin for several years; debt is 106% of GDP; inflation is making the economy increasingly uncompetitive and economic growth is negative. The real danger here is that these conditions will culminate in a credible threat from Italy to reissue its own national currency, enabling it to devalue and thereby regain competitiveness without painful and prolonged deflation. Such an action would have serious Argentina-style results for Italy but could, nevertheless, be seen as the best course of action.

But a decision by Italy to re-issue the lira would undermine confidence in the ability of the euro to survive as a multinational currency. Other EU countries would then be faced with the prospect of providing the Italian Government with large-scale financial assistance to persuade it to stay with the euro.

 
  
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  Eoin Ryan, on behalf of the UEN Group. Mr President, unfortunately the credibility of the European Union has been increasingly questioned over the past few weeks. Rather than trying to construct a new consensus, as Mr Barroso suggested last week, we should concentrate on strengthening the current European consensus on competitive markets, fiscal discipline and hard currency.

Sound economics, realism and results are what citizens are demanding and what are needed to continue to build the European project. Economic reform is needed to create vibrant economies, as has been proven in a number of cases in Europe. If we want enlightened social policies, in the European tradition, we need to reform our economies. The examples are there for all to see.

The revised Stability and Growth Pact gives more countries more time to correct excessive deficits and provides more leeway for countries with strong public finances. Monetary union requires this level of flexibility, so that more internal market competition can be stimulated. The one-size-fits-all situation was always going to be a problem. However, some countries need to cut back on their budgets and others – like my own, Ireland – need to spend more on infrastructure, because they have a deficit, but that is not allowed under the rules. However, giving an inch in terms of flexibility does not mean countries are allowed to take a mile in terms of widening fiscal deficits. Enforcement of the rules is the key. There must always be confidence in the fiscal framework that underpins the European Union.

The recent drop in the euro has been used as a convenient whipping boy for all that has happened recently with the European Constitution. The problem is not with the euro. The problem in some countries is that they are avoiding the stark reality that the world economy is changing and will continue to change. Today’s world economic order demands a lot more, a lot faster and a lot cheaper. Going back to the basics of economics, countries either meet this demand or it will be met elsewhere. There is no point in lamenting over the basic economic principle; there is no point in arguing that we do not have a means of competing with the global economy. We do, and it is the Stability and Growth Pact. However, the failure to enforce these rules has left too many countries stagnating in an economic period that no longer exists.

We cannot continue like this, because it is undermining the credibility of the overall EMU framework. Consequently, this has had broader repercussions in sending a focused message to the citizens of Europe about the positive work of the European Union itself. This has never been more obvious than it is at present. Europe is suffering from a credibility problem and to deal with it we urgently need to evolve from rule makers to economic performers. Sound economics, realism and results are what the citizens want, and our job is to deliver.

 
  
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  Sergej Kozlík (NI). (SK) Questions relating to increased monitoring of the state of budgets, such as the issue of speeding up and clarifying procedures applicable in the case of excessive deficits, are those where parliamentary institutions, as independent and directly-elected institutions at both EU and Member State level, can and should play the role of guardians of the soundness of economic policies, especially as regards their budgetary and deficit-generating consequences. In this respect, I consider the European Parliament’s proposed amendments to be positive, and greatly appreciate them.

The package of Council directives will, however, remain an open document that will, for a long time to come, enable the national governments to use various means to escape this prudent budgetary and deficit framework, to employ more or less obvious forms of putting their countries into debt and to skilfully disguise the expenditure of one-off, unique resources, such as those from privatisation, for governments’ current economic management. Naturally, this meets the purposes of short-term government policies. The path ahead of us is therefore still a long one, but it is one that we must travel.

 
  
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  Piia-Noora Kauppi (PPE-DE). Mr President, the Stability and Growth Pact crops up regularly in debates on the economy in this Chamber. This is an illustration of the central position this agreement has in EU economic policy-making. In this respect, I wish to congratulate my colleague, Mr Karas, on his two reports on this subject.

The report’s emphasis on a stronger role for the Commission in enforcing budgetary discipline is an absolutely necessary development. Especially now, in their watered-down format, the Commission will have to enforce a clear and strict line with regard to the rules of the pact. Furthermore, the absence of the European Parliament in the decision governing the Stability and Growth Pact is rightly highlighted as a serious structural flaw in European economic governance. As the only directly democratically elected EU institution, this Parliament could play a vital role in putting an end to the political horseplay that goes on in the Council and provide the pact with the much needed credibility that many colleagues want.

However, let us not fool ourselves: even with the improved institutional feedback mechanisms that this report suggests, it is not the Stability Pact alone that will lift Europe out of its economic slumber. Helpful as they are, it is not a set of rules that will help us to put public finances in Europe on a strong footing. What we need is economic growth and advances in competitivity, and these derive not from the rules of the pact but from meaningful economic reform, something which many European Member States have avoided for far too long. So we have a new pact and I hope, with Mr Karas’ reports, a better way of making the rules work in a sensible and equal fashion. But until countries achieve meaningful economic reform, we will soon find ourselves in yet another debate on the inflated importance of the pact. I hope the Commissioner will do his utmost to prevent any further dilution of the commonly agreed commitments of the Member States.

 
  
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  Pervenche Berès (PSE). (FR) Mr President, Commissioner, ladies and gentlemen, basically, if I look at what happened in France on 29 May objectively, a lot of reasons are mentioned, including enlargement. Personally, the difficulty we are having in taking advantage of all the space and all the added value that economic and monetary union should have brought us is a real source of concern to me, and I believe it is the real explanation for what happened in my country.

Today we are debating reform of the Stability and Growth Pact, and I would like to express my agreement with my fellow Member Mrs Kauppi on one point. This reform will not bring us all the answers we need if, finally, we are to find the right solution in the euro zone, which ought to be the engine for growth in the Europe of the Twenty-Five as a whole.

Let us, however, accept that what you have done, Commissioner, in agreement with the President of the Euro Group, is a step in the right direction. I hope, moreover, that you will be wise enough to accept some of the European Parliament’s amendments so that we can bring these negotiations to a conclusion under the Luxembourg Presidency. So far as statistical reform, predictability and agreement on the macroeconomic data that should underlie the preparation of the Member States’ budgets are concerned, it seems to me that there are things that should allow us to move in the right direction. This stage is, of course, only one among others, however.

On one point I must disagree with Mrs Kauppi, however. It came up repeatedly in our debates in the Committee on Economic and Monetary Affairs: on its own, structural reform will not be enough to restore domestic confidence, stimulate internal demand and achieve the objectives of the Lisbon strategy.

What we need is more coordination and, on this subject, I absolutely deplore the lack of thinking since economic and monetary union. We need to develop more means, to find other ways besides the Stability Pact, which is still not adequately geared to growth. I wish you good luck for this first stage, Commissioner.

 
  
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  Diamanto Manolakou (GUE/NGL).(EL) Mr President, the workers in the countries of the European Union oppose the capitalist restructurings which result in a reduced standard of living and increased unemployment. They denounce the commercialisation of health and education and the cutbacks in the remaining public utilities and their privatisation. They oppose and are fighting the new, worse, insurance systems. They are calling – and rightly so – for the Stability Pact, the tool and alibi for anti-grass roots objectives, to be abolished.

The reform of the Stability Pact by the European Council on 22 and 23 March was put forward as a relaxing of criteria. Under no circumstances, however, is it a relaxing of anti-grass roots policy; it is another burden on grass-roots incomes for the benefit of big business. That is why the workers should have no delusions or room for expectations.

Unfortunately, today's report does not move in the right direction either. Not only is it indifferent to the trials of the workers, but it also calls for even more unfavourable terms for the application of multilateral supervision and even for a Community fraud squad to undertake financial auditing missions. It calls on the central banks to act as guardian of statistics and sets deadlines for adjusting to the Pact, in which recommendations are made about excessive deficits and debt, as in the case of Greece.

In Greece, the government has used deficits and financial prudence in order to unleash a series of anti-grass roots austerity measures and programmes, thereby guaranteeing even more poverty for the people.

It would appear that the referenda in France and the Netherlands have been ignored. It is as if they never took place and they can carry on as before. However, the referenda returned a resounding ‘no’ and were a real expression of insubordination and disobedience to the commands and policy of the European Union and the political forces which support it, and that is promising.

 
  
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  Johannes Blokland (IND/DEM). (NL) Mr President, at the European Summit of 22 March, it was decided to review the Stability Pact, and the Council agreed on a new kind of Stability Pact, one to which we hope the Member States will adhere this time around. I have always said that stretching the Stability Pact is harmful to economic growth and monetary stability, while at the same time denting public confidence in the euro and therefore in Europe itself. The fact that the change to the Stability Pact concerning the 3% limit is not being made public does nothing to improve confidence in the euro. Although Member States will be permitted to exceed the 3% limit, the Council and the Commission have not, to date, explained how this new arrangement will be translated into practice. If the 3% limit can be exceeded, does that mean that a new limit will be introduced? This is a pressing question, and I would like Commissioner Almunia to answer it.

 
  
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  José Manuel García-Margallo y Marfil (PPE-DE). (ES) Mr President, Commissioner, we have often discussed the Stability Pact and I am going to try to summarise some of the things that have been said.

My spokesman, Mr Radwan, has said something that I agree with: we are beating the retreat. The Pact I liked was the Pact of 1996, which was signed by the CDU Minister Theo Waigel and defended by your predecessor, Commissioner Solbes. We have not been able to maintain it. The Council noted that there was generalised non-compliance in Europe, and it could have done two things: it could have demanded compliance or, euphemistically, it could have made the Pact more flexible, and that is exactly what it has done.

You are appearing here to explain to us the modifications that need to be made to the Regulations in order to make this Pact effective.

What could Parliament do? What could my group do?

We could have produced amendments aimed at reviving the previous Pact, in the form it then took. We have not done that because, following Ortega’s advice, we do not like pointless efforts, which only lead to melancholy. We have presented some amendments, which Mr Karas has explained very well. The intention is to ensure that the disaster does not get any worse. Our intention is to ensure that it is applied properly, in technical terms, with reliable statistics, we want to reduce the margin for arbitrariness, filling in the legal gaps, in short, we want to ensure that the retreat is not a complete disaster.

It has been said here that Europe is not going well and that is the case. But if it is not going well, it is not a result of the Stability Pact, but rather of our not having complied with that Pact.

The Stability Pact, budgetary authority, to put it in quasi-theological terms, is a virtue, a necessary condition, though insufficient, for growth. Furthermore, as Mrs Kauppi has pointed out, we need those reforms that we have been unable to carry out.

Parliament is helping you; it is helping you to reduce the Governments’ margin for discretion. It is up to you to ensure that this does not get any worse.

 
  
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  Udo Bullmann (PSE).(DE) Mr President, Commissioner, ladies and gentlemen, I should like to thank Mr Karas and the House’s shadow rapporteurs for the report we are debating. You have cooperated well and succeeded in pulling this important discussion out of a superficial, ideological debate and ensuring that this House is able to help reform the Stability and Growth Pact, something that is urgently needed.

Why do I say that the reform is urgently needed? Let us simply review the economic facts. We have designed a pact which has lived solely by the idea that it has to combat inflation. This is an important objective and many Member States have managed to achieve it to a large degree. However, at no time was it designed for an Economic and Monetary Union in which we also urgently need to achieve macro-economic coordination, because we need to have the flexibility required in order to be able to react appropriately in an economic cycle, in both large and small national economies.

Compare the data situation in the USA with the data situation in the European Union. Since 2002, the USA has been in a much better position to react to external shocks: to rising oil prices, to September 11, to the crisis on the stock markets. Why? Because its central bank was able to be much more flexible than the European Central Bank and, more importantly, because financial policy did what was needed in the short-term economic situation at the time.

We need flexible and better coordination of our financial policies, so that we can restore trust in the European economy, but, first and foremost, for the sake of our jobs.

 
  
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  Werner Langen (PPE-DE).(DE) Mr President, I should first like to offer the rapporteur, Othmar Karas, my warmest thanks. He has managed to formulate a contentious issue in a relatively short space of time in such a way that Parliament can support it with a large majority.

This was not an ideological debate, Mr Bullmann; it was an acknowledgment that the political will to keep to the 1996 Stability and Growth Pact was missing. At the first serious general test, the two large states, France and Germany, failed totally, assisted at the time by Luxembourg and Greece. This start prevented the Stability and Growth Pact from playing its proper part as originally planned.

In this respect, the current reform is, in all events, a second best solution, which uses the argument of flexibility in order to exclude future infringements of the rules. In saying this, I am also voicing criticism of my own government in Germany. Introducing the costs of European unification as a new criterion has thrown the door wide open to arbitrariness and means, in principle, that sanctions will no longer be possible in future, even with a 4% or 5% excess. I consider this to be a definite mistake.

Given the powerful role of the Council and the inadequate role of Parliament in this matter, the Commission could only react defensively. We have debated this often here in this Chamber. That is why I think it is a good thing that Mr Karas addresses precisely this point in his reports. More competence for the Commission, a stop to the sinners standing in judgment and greater participation by the European Parliament – these are things we can agree on. However, nobody will be able to say that this version of the Stability and Growth Pact is forward looking and will contribute towards the future stability of the euro.

 
  
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  Poul Nyrup Rasmussen (PSE). (DA) Commissioner Almunia, ladies and gentlemen, I wish first of all to say that I think matters have gone extremely well for Commissioner Almunia when it comes to the Stability and Growth Pact. The result is sensible modernisation, which we can fully support. What we now have is the golden European triangle with three types of instrument we shall have operating together. The first is the Stability and Growth Pact, the second the Lisbon process and the third the broad economic guidelines.

Having said that, Mr President, I cannot hide the fact that our debate today is taking place in the light of referenda in France and the Netherlands which, among many other things, reflect a grass-roots demand for a real agenda for Europe. Such an agenda also means our having to say that we have understood Europe’s need for the Stability and Growth Pact but that the pact does not, of course, in itself create new jobs. It is the basis for getting structural reforms and, at the same time, macroeconomic investment under way. Moreover, it is because of these efforts that the national governments need to concur with our line of thinking. With the modernisation of the Stability and Growth Pact, we have obtained a useful tool, but that tool must now be accompanied by a number of other tools at national level that can create the new jobs we so badly need.

That, Commissioner Almunia, is why I hope that this pact, which is now almost in place – and which I am certain will be implemented – is the first step on the way to a new and genuine agenda which, in reality, is the prior condition for creating popular understanding in connection with that modernisation of the treaties that we have been debating so vigorously over the last few days.

 
  
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  Ivo Strejček (PPE-DE). (CS) If I may, I should like to make a few remarks, even though I represent the Czech Republic, which is not a member of the eurozone. The first thing I would like to say is that the main reason for the victory of the ‘no’ camp in the recent French referendum was French people’s fears regarding the future of their expensive social system. France is, of course, a member of the eurozone, and cannot therefore allow itself to violate the rules of the Growth and Stability Pact in the long term: in my opinion, this will lead to rising tension between the existing rules and the willingness of French politicians to please large parts of their domestic electorate.

Secondly, it is not at all clear in the short term how vigorously and, above all, with what political courage public finance reform will be carried out. I am thinking in particular of France, which will only be able to keep its finances under control by restructuring government revenue and expenditure, or in other words by carrying out unpopular reforms.

The situation in the Netherlands is somewhat different, and this is the third point I should like to make. After entering the eurozone, the Dutch had to give up their strong currency, and under the hugely unfavourable conditions of an undervalued exchange rate. They doubtless reminisce about the strong guilder, which would now help them solve the problem of negligible economic growth.

Fourthly, other key members of the eurozone, namely Italy and Germany, are experiencing problems with over-expensive social systems and sclerotic economies, and they can expect structural reforms that will doubtless be tough.

It is of key importance for the stability of the euro, and I think Mr Karas’ analysis of this point was relatively accurate, that the basic rules of the Stability and Growth Pact remain unchanged, or that they apply to all countries always and at every moment. That is why the eurozone countries should first comply with the current rules that apply to everyone, and only then debate any possible relaxing of these rules.

 
  
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  Benoît Hamon (PSE). (FR) Mr President, since we are speaking of steering the European economy, I cannot resist making the following observation: by bringing the euro closer to the dollar, the combined efforts of the citizens of France and the Netherlands will have done more, in the space of a few days, to make European exports more competitive than anything the European Central Bank has done. I would therefore like to pay tribute to the effectiveness of Europe’s citizens rather than the certainties of the central bankers.

The March Council’s decision to reform the Stability and Growth Pact – a decision largely inspired by yourself, Mr Almunia – is a step in the right direction. It is not enough, however, to reassure people that the European Union is capable of adopting a strategy that will bring lasting revival to the economy. We cannot separate the debate on the future of the Stability and Growth Pact and hence on the coordination of economic and budgetary policies from the debate on the financial perspectives. How can you cut the Member States’ deficits unless, in return, the European Union gives itself the budgetary resources to guarantee social cohesion and revive the European economy?

Personally, I do not believe that budget austerity in the Member States combined with budget inertia in the Union is the answer to the twin challenges of growth and employment. I would therefore like to say that it is now time, at the stage we have now reached, to speak about increasing and diversifying the Union’s resources, even if that means amending the Treaties to allow the Union to take out the loans and raise the European tax that our current economic and political crisis demands.

 
  
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  Cristóbal Montoro Romero (PPE-DE). (ES) Mr President, allow me to put the following question to the House: would we be experiencing the current crisis in the European Union if economic growth and job creation were strong here, if the large European countries were offering us a different profile, if they were promoting the whole of the European Union and contributing to balancing the world economy? Surely the answer would be ‘no’. There would be resources, there would be money to fund enlargement, for the challenges of the European Union. But there is no economic growth because there is no confidence. And there is no confidence because we lack determination when it comes to applying and implementing confidence and stability policies.

That is the contribution of the Stability Pact. Its reform, Mr Almunia, comes at a complicated time. The next thing now under threat in this crisis in the European Union is the euro. The reform of the Stability Pact must therefore be the right reform.

Mr Karas has done an excellent job trying to remedy a mistaken proposal on the basic content of the Stability Pact.

Mr Almunia has told us tonight that the Commission is satisfied with Parliament's position on improving the quality of statistics and the surveillance of debt. I would also like to hear from Mr Almunia that he is in agreement with the listing of relevant factors, which are extremely important if the Stability Pact is not to be a box in which we can fit everything, and in which, at the end of the day, the rules can be ignored. We have reached a situation in which each country does what it sees fit in order to promote the policy of budgetary stability and, if relevant factors are undefined, this would be practically impossible.

We have an example within the European Union of Fifteen: the countries which have done their duty in budgetary terms are the ones which today are enjoying economic growth and employment. We do not have to look for models elsewhere. We should identify those countries within the European Union and all apply those policies.

 
  
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  Manuel António dos Santos (PSE). (PT) Mr President, Commissioner, Europe’s citizens continue to point the finger at the Stability and Growth Pact and the single currency as the real culprits of the ongoing economic and social crisis in Europe. At the same time, European politicians of almost all ideological hues trot out the same politically-correct rhetoric, extolling the virtues of restrictive fiscal policies and of the overriding obsession with price moderation.

This contradiction must stop and this is now the real challenge that the European institutions must meet head on. The Council and the Commission recently took steps to tackle this dilemma, including the relaunch of the Pact and the regulations that we are discussing in this House. Parliament, in turn, does what it can with the powers that it has. The rapporteur should be warmly commended for raising a number of concerns such as construction fault, the reliability of statistics, relevant factors, the deadlines for correcting deficits and the stepping up of budgetary surveillance.

In spite of these steps and the undoubted quality of your work, Commissioner, it remains to be seen whether these remedies have come in time and whether they will be sufficient. Pangloss said that we live in the best of all possible worlds, but in 1755 there was a terrible earthquake in Lisbon, which had a profound effect on political and economic relations in Europe in the 18th century. We have a duty at least to reflect on this.

 
  
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  Karsten Friedrich Hoppenstedt (PPE-DE).(DE) Mr President, ladies and gentlemen, basically everything has been said, but not by everyone and, more to the point, not by me. Firstly, I should like to offer the rapporteur, Othmar Karas, my warmest thanks. He has made the best of a bad job, and on that, I might perhaps be permitted to comment.

Today is the third time I have stood on this podium in order to speak on the Stability Pact. In 1997, Parliament had to give its opinion on the introduction of the euro and the Stability Pact associated with it at the time. We did so gladly, because we were convinced that the Stability Pact offered a basis of trust for the citizens. This time, as the rapporteur rightly said, the European Parliament has only a minor role in the whole procedure. Consultation means something different in my view. Monetary questions are questions of trust and this trust is shaken by the watering down of the Pact. The two so-called big countries – in what the rapporteur calls 'peer complicity' – set the entire watering down process in motion, as we have already heard here today. Big gestures, big overtures obviously no longer convince the citizens of Europe. The shattered remains of the Schröder and Eichel policy in Germany and the Chirac policy in France have drawn the euro into this completely negative discussion.

The report formulated by the rapporteur is a desperate attempt to rescue some of the philosophy behind stability. We must stop exacerbating the crisis of confidence still further. The best solution would be if Mr Barroso, and Mr Juncker on behalf of ECOFIN, were to withdraw all changes to the Stability Pact in the light of recent developments.

 
  
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  Szabolcs Fazakas (PSE). (HU) For Hungary, like all the new Member States, meeting the convergence criteria is a key requirement, as well as being in the country’s own interests. In its efforts to do so, it must take into account the fact that alongside the overall positive economic impact of EU accession, it also puts considerable transitional pressure on the government budget. There are costs involved in meeting its contribution obligations and getting the new institutional network up and running, while outstanding customs and other revenues and implementation of new, more flexible VAT regulations have caused a serious deficit. At the same time, it is not the budget itself that is the beneficiary of the projects funded by the EU that are so important for the national economy, but the local authorities, institutions, or companies concerned; the burden of cofinancing, meanwhile, must be met out of the government budget. We want to be successful members of a successful European Union and so we accept these transitional pressures and ask that they be taken into consideration when it comes to assessing our performance.

 
  
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  Joaquín Almunia, Member of the Commission. (ES) Mr President, I would like once again to thank Mr Karas for his reports and all the Members who have spoken in the debate for their contributions.

Of all the contributions, I would like to refer to two of them, in particular those that have demonstrated the success of the euro, of the single currency, and I feel I should point out, at a time when certain statements appear to have called into question something that is obvious; that the euro has brought stability, solvency, historically low prices, that the euro has brought us historically low interest rates, that the euro is making us stronger. This should be pointed out because, immediately afterwards, I must say that in order to maintain that strong single currency which strengthens us as Europeans in economic terms and in other terms requires a fiscal framework and a Stability and Growth Pact such as the one defined in the Treaty and provided for by the regulations that this Parliament is discussing today through its partial amendments.

I would also like to express my agreement with those of you who have reacted to certain pessimistic analyses. It is true that there are economic difficulties, that there are growth and employment problems, that the citizens often feel that their needs are not sufficiently met. But it is also the case that when we are looked at from the outside, or when the situation of the European economies is looked at objectively, there is also cause for optimism.

At the meeting of the Eurogroup the day before yesterday, the Director of the International Monetary Fund’s European Department explained to us the general lines of the reports that it has just published and that can be consulted on the International Monetary Fund's website on the economy of the euro zone. He began by telling us that he is surprised about the excessive pessimism, since, on analysing the European economy, he has noted that the conditions are in place to allow it to recover fully.

There is a problem with confidence in some of the main European economies and one of the objectives of the reform of the Stability Pact is undoubtedly to increase the confidence in, and credibility of, a necessary framework of fiscal and budgetary discipline. To this end, this reform is balanced; it introduces certain elements of flexibility, but it also introduces greater demands -- particularly in the preventive part, regulated by Regulation (EC) No 1466/97. It is a reform that requires more transparency and it has therefore contributed to the adoption of important decisions aimed at improving the quality of our statistics. Furthermore, on the proposal of the Commission, Ecofin yesterday approved certain very important conclusions which indicate the improvements that are being made to the European statistical system and, in particular, to fiscal statistics.

Restoring confidence also requires a clear explanation. In many of your comments, ladies and gentlemen, I have noted an understanding of the Pact and of what the reform of the Pact means. In others, I have recognised ignorance or lack of knowledge or, in some cases, simply an interpretation that is not in line with reality: the reform of the Pact cannot be accused of repeating literally what the Treaty says, because what would jeopardise confidence would be to go against the Treaty. To act in accordance with the Treaty, to repeat what the Treaty says with regard to the reference value for public deficit, to the reference value for public debt and to all the factors that must be taken into account Article 143 of the Treaty lays down the relevant factors to be taken into account when analysing a country's excessive deficit situation to comply fully with the Treaty in every respect, to re-read carefully the Treaty approved in order to implement the Economic and Monetary Union, is one of the elements that will do most to restore confidence in the euro zone and throughout the whole of the Economic and Monetary Union.

In any event, I am convinced that this reform we are discussing today - and that I hope will enter into force at the end of this month - respects the rules, introduces clarity, economic rationality, demands equal treatment and will be applied rigorously, as was demonstrated yesterday. And what it requires from all of us is an accurate and full explanation of what it means, and in that way we will help the European citizens and the European project.

 
  
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  President. The debate is closed.

The vote will take place on Thursday at 12 noon.

 
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