WASHINGTON, March 8 (UPI) -- The two-day marathon meeting held in Brussels among the European Union's 25 member states was left in disarray Tuesday by finance ministers who could not decide on suitable reforms, if any, that could be made to the EU's monetary policy.
The issue of reforming the EU's Growth and Stability Pact, which requires that member states have a maximum deficit of 3 percent gross domestic product, has been on the table since last September after France and Germany demanded that rules governing the stability pact be loosened in order for both countries to recover economically and increase growth.
France and Germany have been key leaders of the debate calling on the European Commission to make necessary concessions to loosen the stability pact. Germany has said that strict adherence to the stability pact has hindered its economic growth and enlarged its deficit. It has also said that the reunification of East and West Germany as well as the emergence of the euro has curbed its ability to grow.
Both countries have been in breach of the 3 percent deficit rule for the last three years and economists have predicted that Germany will breach it yet again in 2005. Countries like the United Kingdom, and Italy who has recently been found to be in breach of the stability pact, have been supporters of the reforms.
The meeting was hoped to resolves some of the surrounding issues before the final pact is presented to EU leaders at the March 22-23 summit meeting.
On Monday, Prime Minister Jean-Claude Junker presented 12 of the member states with a proposed set of resolutions, which could be implemented into the stability pact, some of which took into consideration concerns that Germany has raised. Among them included avoiding sanctions if member states' budget deficits breached the pact's ceiling of 3 percent GDP.
But by Tuesday, with little concession from Germany and a number of non-euro member states, Luxembourg's Prime Minister Jean-Claude Junker said that planned reforms might have to be abandoned.
"I am beginning to seriously consider the option of not changing the pact at all," Junker told reporters in Brussels. "We are not excluding the scenario of leaving the pact as it is. That is now a distinct possibility."
"I have no goal of replacing a pact that doesn't work well with one that seems to function but goes wrong later," he added.
The biggest point of contention by Germany has been that member states should not be punished for having a deficit that breaches the 3 percent gross domestic product maximum, especially for countries with extenuating circumstances.
German Finance Minister Hans Eichel argued that the commission should take an "overall view" of the country's economic situation, not only its deficit, reinforcing the cumbersome costs of the reunification of Germany.
"This special burden should be mirrored in the pact because it does not demonstrate a lax and negligent fiscal policy but rather a central - even historic - a societal responsibility for our country," Eichel said, according to the International Herald Tribune.
New member states and Austria have been among the many who have been against any reforms of the stability pact. Austria claims that any reforms on the stability pact would be going in the "wrong direction."
The European Central Bank has been clear about its opposition, claiming that reform to the "corrective arm" is necessary, but that reforms in the "preventative arm" would be useful to create mechanisms for keeping track of fiscal policies.
Much debate has encircled such reforms. Economists have claimed that corrective reforms would weaken the pact and risk the credibility and stability of the single currency.
Analysts have also suggested that any substantial reforms would undermine the credit ratings of countries in the euro zone.
In a report issued by the International Monetary Fund on the World's Economic Outlook, the IMF predicted that further moves to weaken the stability pact would haunt the euro in the future.
"A strong fiscal framework remains an essential element of the monetary union, especially given Europe's history of procyclical fiscal policies, the accession of new member states with significant deficits, and the likelihood that market discipline would be too, too late," the IMF report stated.
In its report, the IMF identified that the European Union's failure to adjust the stability pact has been existent since 1999-2000. It also said that any potential reforms would "underscore the desirability of strengthening the incentive" during prosperous times and instead would focus greatly on medium-term sustainability.
The 12 finance ministers will meet March 20 in order to make headway before the March summit.
