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Monday, 21 October, 2002, 15:10 GMT 16:10 UK
EU fiscal policy gets interesting
Romano Prodi
Mr Prodi can't quite believe the fuss


The timing was horrible.

On Sunday, the European Union received its first piece of unequivocal good news in months - the unexpectedly emphatic "yes" vote in the Irish referendum, paving the way for the enlargement of the EU.

But instead of basking in the glory, European Commission President Romano Prodi has been relentlessly hounded for what appears to have been an off-the-cuff gaffe.

Last Thursday, Mr Prodi told France's Le Monde newspaper that the Stability and Growth Pact - the mechanism by which Brussels regulates EU members' state budgets - was "stupid".

Over the weekend, he has refused to back down, causing the sort of media flutter that fiscal policy all too rarely attracts, and resulting in him being called to explain himself before the European Parliament on Monday.

Good point

To be fair to Mr Prodi, his remarks were not entirely crass.

Irish
While the Irish celebrate...
By characterising the Pact as "stupid", he was attempting - clumsily, perhaps - to pour scorn on rigid decision-making in general.

Elsewhere in his Le Monde interview, he insisted that the Pact was the only way that EU members could co-exist with the same money, and argued that divergent economic policies would be "crazy".

And in any case, the Stability and Growth Pact is quite stupid.

It was introduced in 1997 to assure Germany that the EU's more rickety members would not overspend and destabilise the soon-to-be-launched euro.

It has failed to achieve this, ironically, most acutely in the case of Germany itself - and instead has become an embarrassing focus on controversy over the past year.

The Pact, most analysts argue, was fine to give the baby euro an appearance of solidity, but now fails to reflect Europe's heterogeneous economy.

Foot in mouth

But for a Commission president to say as much was foolish.

Gerhard Schroeder
... Germany worries who'll foot the bill
For months now, all parties - from the German Government through to the Commission itself - have denied that there is any move to tinker with the Pact.

And rightly so: the financial markets have always been quick to punish any perceptions of disunity.

Dull - stupid, even - it may be, but the Stability and Growth Pact has to be changed incrementally, with the co-operation of all involved.

Romano Prodi - a politician after all, not a naive bureaucrat - should have known how his "stupid" jibe would come across.

Deliberate mistake

And this is why many commentators have preferred a conspiracy theory for Mr Prodi's remarks.

In interviews, Mr Prodi tends to be cautious to the point of tedium; a continent-rattling gaffe is simply not his style.

Could it be, some suggest, that he is testing the water for a thorough shake-up of European budget rules, hoping to flush out the enemies of reform before the formal debate begins?

If so, it might seem that he has found few enemies to take on.

Most comment from people that count - including senior ministers in many EU governments - has been wholly favourable, and there has long been a consensus among economists that reform is inevitable.

The enemy's within

But there are opponents, and Mr Prodi's remarks may spell the opening shots in a protracted battle.

Wim Duisenberg
Reform? Over my dead body, says Duisenberg
While politicians may applaud a dose of flexibility, the European Central Bank (ECB) is dead against such a move.

After the most recent eurozone interest-rate decision, ECB president Wim Duisenberg said he noted with concern "that there is still insufficient ambition in some countries to bring budgets to positions close to balance or in surplus over the medium term".

Concerned, too, are many senior and middle-ranking EU officials, who hate the idea of power seeping back from Brussels to member states.

But as, thanks to the Irish referendum, the EU expands and becomes ever more diverse, Brussels is going to need more flexibility, not less.

If Brussels digs its heels in now, that really would be stupid.

See also:

17 Oct 02 | Business
16 Oct 02 | Business
30 Sep 02 | Business
26 Sep 02 | Business
25 Sep 02 | Business
24 Sep 02 | Business
02 Sep 02 | Business
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