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Capital Markets

EU stability pact row threatens reform drive

The imminent accession of 10 countries to the European Union comes at an inauspicious time for the EU project, with the collapse of constitutional proposals and an undermined Stability and Growth Pact. This will alter accession countries' attitudes to their obligations, with consequences for eastern European finance. Julian Evans reports.

 Miklos and Raczk 
believe weakening of
the Maastricht criteria
and different treatment
for different countries
spells danger for the EU




THE BLOW TO the European Union's Stability and Growth Pact in November 2003, with France and Germany ignoring the demands of the European Commission to lower their budget deficits, has shaken the EU just as it prepares to welcome new members. On May 1, 10 accession countries will join a union in which the EC is locked in a bitter legal battle with member states. As Ilmars Rimsevics, governor of Latvia's central bank, says: "People are asking: 'Why are you joining a union that is dying?' The biggest pessimists are already saying that monetary union is dead."

Monetary union may not be quite dead. But fiscal union certainly seems to be in a critical condition after the French and Germans rejected a demand that they reduce their budget deficits closer to the 3% of GDP level required by Maastricht Treaty criteria. Ecofin (the council of EU finance ministers) decided not to impose sanctions of 0.5%

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