BRUSSELS, March 21 (UPI) -- Former Dutch Prime Minister Wim Kok's fears that the two-day spring summit in Brussels starting Tuesday will be dominated by talks on easing restrictions on the European Union's growth and stability pact may have subsided, at least temporarily.
On Sunday night, European finance ministers agreed to rewrite the rules of the stability pact -- the fiscal rules which underpin the euro -- allowing member states to breach the maximum 3 percent budget deficit of their gross domestic product under exceptional economic circumstances.
Although countries like Austria and the Netherlands have been vehemently opposed to any dilution of the stability pact, claiming that a weakened pact would only hurt Europe's ailing economy and latent growth, finance minister agreed to create a more flexible pact, which would allow countries facing slower growth rates to be relieved of any penalties.
Under the new pact, countries would be excluded from receiving financial penalties and would be given a two-year period in which to get their economy back on track.
"Member states' economic situations are too different for everyone to be lumped together," said Daniel Cohn-Bendit, co-president of the Green Party in the European Parliament. "The assumption that economic policy could be reduced to one single figure -- the deficit ceiling of 3 percent of gross domestic product -- has rightly been redressed."
Germany who has been the lead proponent of revising the pact, has been in breach of the stability pact for the past three years and is expected to breach it again in 2005.
Since the debate was launched in September, Germany has argued that the economic repercussions of a reunified Germany has left the country's economy lackluster and without any room for growth. It has also argued that strict adherence to the stability pact has hindered its growth and enlarged its deficit.
Luxembourg Prime Minister Jean-Claude Juncker announced at the end of the Sunday meeting with ministers that the final political agreement on the revised pact would be presented at the summit meeting of the European Council on Tuesday and Wednesday.
But already there has been overridingly strong opposition to the revised stability pact.
The European Central Bank, which has previously warned that a weakened stability pact would only create further economic problems, said Monday that, "it must be avoided...changes in the corrective arm undermine confidence in the fiscal framework of the European Union and the sustainability of public finance in the euro area member states."
"Sound fiscal policies and a monetary policy geared to price stability are fundamental for the success of economic and monetary union. They are prerequisites for macroeconomic stability, growth and cohesion in the euro area."
Alongside the ECB, Standard & Poor's and the International Monetary Fund have all warned that easing constraints on the budget deficit would only lead to enlarged deficits, lower credit ratings and skyrocketing inflation rates.
The European Association of Chambers of Commerce and Industry, affirmed that looser restrictions on the stability pact would not ensure member states' commitment to maintaining the required budget deficit.
"The review of the pact should be based on economic objectives and principles," said Paul Skehan, Deputy Secretary General of Eurochambres. "A lite-pact will not restore credibility in the pact, Europe and its institutions."
"The member states' track record of sticking to the rules has not been convincing. Why should that be different after loosening the rules? If the European Council confirms the compromise it will have negative effects on Europe's debt levels, tax and interest rates and will potentially cost jobs," Skehan added.
Instead, Eurochambres called for a lower, but more flexible GDP deficit, an automatic procedure by the European Commission to execute sanctions against countries who have breached deficits and to remove any language that exempted countries from penalties due to "exceptional circumstances."
Although, the two-day meeting of finance ministers is expected to finalize the pact and thrust discussions towards the relaunch on the Lisbon Strategy --the EU's economic reform agenda -- with so much opposition to a diluted pact, debate over flexibility may override discussions on reforming the EU's economic strategy.
"If member states are serious about boosting growth in the EU, then they've got to start coordinating their economic policies," said Poul Nyrup Rasmussen, president of the party of European Socialists.
"At the moment, they are failing to do this properly at a great cost to European growth. Our ability to create more jobs will depend on better economic governance. What Europe needs is higher internal demand, stimulated by investments coordinated across Europe," Rasmussen added.
Both Kok and EU President Jose Manuel Barroso have called on the member states to strengthen their commitment to increasing growth, productivity and jobs.
"Lisbon is about achieving the possible, not the impossible," said Barroso in a speech at the Centre for European Reform last Thursday. "But while the Lisbon reforms offer the right recipe, its ingredients are not for free. This is a shared responsibility. We need a common effort to overcome the risk that people believe we can simply carry on as things are."
