Tuesday, 7 October 2008

EU: Excessive government deficits Ig

At the intergovernmental level, under the ‘old’ Stability and Growth Pact, the failure of France and Germany to avoid excessive budget deficits and the inability of the Council to decide on effective recommendations, in the first case where sanctions should have been meted out, brought the Stability and Growth Pact into disrepute and led to the subsequent court case launched by the Commission.



The European Court of Justice was called upon to resolve questions relating to the excessive deficit procedure under the ‘old’ Stability and Growth Pact in case C-27/04, when the Council had left the procedure against France and Germany in abeyance.

The 13 July 2004 judgment of the ECJ in Commission / Council concerning annulment of measures of the Council 15 November 2003, was the following:

1. Declares the action of the Commission of the European Communities inadmissible in so far as it seeks annulment of the failure of the Council of the European Union to adopt the formal instruments contained in the Commission’s recommendations pursuant to Article 104(8) and (9) EC;

2. Annuls the Council’s conclusions of 25 November 2003 adopted in respect of the French Republic and the Federal Republic of Germany respectively, in so far as they contain a decision to hold the excessive deficit procedure in abeyance and a decision modifying the recommendations previously adopted by the Council under Article 104(7) EC;

See :
http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&Submit=Rechercher&alldocs=alldocs&docj=docj&docop=docop&docor=docor&docjo=docjo&numaff=C-27/04 &datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100


C-27/04 analysis

Barbara Dutzler and Angelika Hable, in ‘The European Court of Justice and the Stability Pact ─ Just the Beginning?’ (European Integration online Papers, EIoP, Vol. 9 (2005) No. 5, 1 March 2005), presented the excessive deficit procedure step by step, as applied to Germany and France, as well as a detailed analysis of the ECJ judgment:



New Stability and Growth Pact analysis

Franz-Christoph Zeitler, member of the executive board of the Deutxche Bundesbank ‘What remains of the Stability and Growth Pact?’ (26 August 2005) assessed the ‘new’ Stability and Growth Pact, saying that overall the fiscal rules have been significantly weakened. By contrast, the challenges facing a stability-oriented fiscal policy in terms of public acceptance have grown considerably:


According to Zeitler:

“The problems and weaknesses of the old pact were not due to it being too rigid. On the contrary, they lay in the weakness of the political decision-making process for the incentives and sanctions system and in a preventive effect which was too modest.”


Excessive deficit procedures: current and closed

The European Commission, Economic and Financial Affairs, offers information on the Stability and Growth Pact with a page on ongoing and closed excessive deficit procedures concerning specific countries:



This glimpse at the existing (‘new’) Stability and Growth Pact, including the excessive deficit procedure, has not resulted in conclusive evidence of the margins of appreciation or the limits of Council discretion concerning small, exceptional and temporary excesses above the reference value of 3 % of GDP, in a situation where fiscal restraint seems to be heading for abandonment (suspension) following the financial turmoil and weakening real economy in Europe.

Even under exceptional circumstances, extraordinary budgetary excesses would presumably have to meet the tests of necessity and proportionality.

Readers with knowledge and views are invited to comment.

Ralf Grahn