European Court suspends ECOFIN decision

The European Court decided on Tuesday to annul the ECOFIN decision dated November 25, 2003 that had frozen sanctions issued by the European Commission against Germany and France for their failure to reduce their fiscal deficit below 3% of GDP. This decision concerns not only Germany and France, but also the EU member states for which the European Commission had set an “excessive deficit procedure” (including Cyprus). The EC recommendations were based on article 104 (7) of the European Treaty.

FINMIN: CY must adopt the Convergence Program

Given that Cyprus is pledged to drop its fiscal deficit below 3% before 2005, this decision proved that the EU operates in a specific way. Cyprus must adopt the Convergence Program and achieve a fiscal consolidation, Finance Minister, Makis Keravnos said.

AKEL: Decision serves libertarian policy

AKEL MP Stavros Evagorou said that the European Court’s decision has political dimensions that do not affect Cyprus at the current stage. The European Court issued its decision based on the Stability and Growth Pact, taking into account the ideologies that serve the libertarian economic perception. “This ‘unprecedented’ decision annuls the ECOFIN decision, strengthening the European Commission. AKEL believes that the expansionist economic policy is possible in certain cases only. We also express the hope that the Convergence Program is adopted on time, to avoid the increase in taxes and the cutback of social benefits”, Mr. Evagorou told StockWatch.

DISY: CY must take effective measures

The European Court’s decision has clarified that the provisions of the Stability and Growth Pact are effective for all EU member states, irrespective of their size. The Cyprus government must therefore take the proper measures of fiscal consolidation”, DISY Deputy Finance Commissioner, Iosif Iosif said, stressing that the government must adopt the measures proposed by DISY.

European Court’s decision

The decision issued by the European Court has become a landmark in the interpretation of the provisions of the Stability Pact and forces the ECOFIN to reexamine the recommendations of the European Commission for the fiscal deficits of France and Germany.

In early 2003, ECOFIN had requested by Germany and France to proceed to the necessary measures to drop their fiscal deficit below 3% of GDP. The two countries failed to comply with the rules and the European Commission addressed the ECOFIN, asking for a measure taking by the two member states.

Although ECOFIN was aware of their incompliance, it ignored the European Commission’s recommendations, accepting the gradual drop in deficit by the end of 2005. This was deemed as ‘abuse of authority’ by the European Commission, which appealed to the European Court seeking for the annulment of the decision.

No amendments to EC recommendations

According to the European Court decision, the ECOFIN has no right to amend the recommendations of the European Commission. The ECOFIN’s decision to suspend the disciplinary procedures against France and Germany were, therefore, cancelled.

Excessive deficit procedure

European Treaty provides for the launch of certain procedures in case of excessive deficit. The procedure includes several stages, from a simple reprimand or recommendation to the imposition of a fine (FOR EMU members).

EC: Equality in the enforcement of commitments

The reaction of the European Commission was measured. Although it emphasized the role of the Stability and Growth Pact on the process of fiscal surveillance, it appeared unwilling to make any comments.

It admitted, however, that the decision confirms its view on the respective roles of the Commission and the ECOFIN.