(THIS ARTICLE IS MACHINE TRANSLATED by Google from Norwegian)
Such questions have been shaking beneath the surface in the EU for over a decade. The last year indicates that the three questions must be answered with yes – no – no.
What is trembling beneath the surface is the Stability Pact that the German government set as conditions for replacing the D-mark with the euro. The Stability Pact states that when a country has a larger government budget deficit than three per cent of the national product, the fourth part of the more deficit should be paid into the EU as a deposit the country receives only when the deficit is again below three per cent. This is such a huge amount that it has been difficult to believe that it can be taken seriously.
Germany and France have now for three years in a row deficit in their state budgets, which blows this limit to three percent of GDP. They were to be punished for it for three years in a row according to the rules of the Stability Pact. It has not happened.
Admittedly, in November 2003, the European Commission demanded that German government spending be cut by NOK 50 billion. Similar demands were made on France. But the European Commission cannot do that. Only the EU Council of Ministers can.
When the courage fails
On 24 November last year, the fifteen finance ministers met in the Council of Ministers to consider the commission's penalty proposal. The finance ministers in the Council of Ministers have in recent years reacted strongly to far less dramatic breaches of the Stability Pact from Portugal and Ireland – and it was demanded from many quarters that large countries such as Germany and France must be treated as strictly as smaller countries.
But most finance ministers would not penalize Germany and France for withdrawing such large sums of money.
The conflict with Germany and France in the autumn of 2003 became extra sensitive because the governments of many smaller EU countries were provoked by the draft constitution which was scheduled to be adopted at the EU summit in December 2003.
This proposal would lead to a sharp shift of power from small to large EU countries. Then it became an additional challenge that Germany and France did not follow the rules that smaller countries had to follow.
But the governments of Germany and France had made it more than clear that the orders from the European Commission would not be followed up. Both countries are struggling with stagnant economic growth and rising unemployment. This means that tax revenue is failing, and that the costs of unemployment benefits and social assistance are only increasing and increasing. In such a situation, cuts in public expenditure mean that the problems worsen – that growth opportunities are affected and that unemployment increases further.
Selected trial
The European Commission chose to bring the case before the European Court of Justice and wanted the Council of Ministers to have convicted of violating the EU rules on the Stability Pact. The officials of the European Commission thus went on trial against the finance ministers of the governments that have appointed them as members of the Commission.
Poul Nielson, the Danish member of the commission, explained the decision as follows: "If we did not go to court, we would be throwing the EU into a completely unpredictable situation without laws. It would be an orgy where the biggest countries always decide at the expense of the small ones. " (Politics 14.1.03)
There was no single case before the European Court of Justice. It could reject the case on the grounds that it is a conflict that is more political than legal. It could judge as the commission wanted, or it could acquit the finance ministers.
If the European Court of Justice dismissed the case or acquitted the finance ministers, the Commission would suffer a major loss of prestige. But it would also be a strong signal that large countries can do as they please – even when they break regulations that all countries are required to follow.
In July, the Court ruled that the Commission was right that the finance ministers violated EU regulations when they rejected the Commission's proposal to respond to the breaches of Germany and France. However, the verdict is of no practical significance since the court would not say anything about what this would mean for the governments of Germany and France.
It had its good reasons. It is Germany and France that struggle most to deal with the economic stagnation that characterizes most EU countries. This is where unemployment is highest – when one disregards Spain. And this is where the finance ministers give the most gas in the form of budget deficits in excess of four percent of the national product.
Stupidity Pact?
If Germany and France followed the rules of the Stability Pact, it would take longer to get growth going again throughout Western Europe. It would drive even more people into unemployment and trigger fierce protests both against the two governments and against an EU system that forces governments to make matters worse.
At that time, no one was inferior to Commission President Romano Prodi, who in 2003 stamped the Stability Pact as a stupidity pact. He therefore stood with low credibility when he demanded that the stupidity be used as a basis for a judgment in the European Court of Justice.
The EU's monetary union is unsuitable for economic turmoil. Then all countries will need an "expansive" budget policy: they will all want to increase the deficit in the state budget in order to pump purchasing power into the national economy.
The problem arises when some countries drive more "expansively" than others. This means that they reap the benefits of monetary union without taking on the disadvantages: they get low inflation and the same interest rate as all other countries as a result of the interest rate policy of the EU central bank. But at the same time, they allow themselves growth at the expense of other countries – unless other countries follow suit.
When it rains on
If other countries follow suit, inflation will increase throughout the EU, and the central bank may respond by raising interest rates. It was just such a development that the Stability Pact should prevent.
Goodwill towards Germany and France is therefore rooted in the entire foundation of the monetary union. If large countries can break the solidarity embedded in the Stability Pact, other countries may be tempted to do the same.
But it is probably easier to punish small countries than big countries like Germany and France. It was also no coincidence that the two rule-breakers received full solidarity from the UK and Italy in the Council of Ministers.
The four big ones in the EU are strong when they stand together. That's why they stand together when it rains.
