MNI EXCLUSIVE: Ecofin to Debate EC's Fiscal Rule Discretion

--Many Member States Worry Over Discretionary Use of Rules By "Guardian of the

Treaties" 

--Commission Defends "Flexible Approach" In Application of Rules 

--Concerns Grow Over Favourable Treatment of Countries such as France, Italy

by Jean Comte

     BRUSSELS (MNI) - European Union finance ministers will discuss next week

whether the European Commission should use a "margin of appreciation" when

assessing the compliance of Member State budgets with the European fiscal rules

laid down in the Stability and Growth Pact, Market News has learnt. 

     The debate is likely to be controversial, as several countries are pushing

against the idea of discretion over the rules.

     The debate follows a Commission statement from last May when the executive

stated that "it stands ready to use its margin of appreciation" for future

assessment of member State budgets.

     The move went unnoticed then, but it recently resurfaced during a

"controversial" meeting of national experts in Brussels, a source told MNI. A

"large" number of member States, including countries such as Germany,

Netherlands and Czech Republic, opposed the idea.

     These members "voiced concerns about transparency and predictability as the

Commission has not yet clarified for which countries it intends to apply

discretion and which deviations (from EU fiscal rules) will be allowed," reads a

summary document from the meeting obtained by MNI. 

     "By nature, discretion is not transparent in real time which makes it

difficult to reconcile with a multilateral fiscal surveillance system based on

ex-ante rules," adds the paper.

     They are concerned to see this "margin of appreciation" used in a

discretionary way, and only for countries which are in a difficult fiscal

position -- such as France and Italy. "There are concerns regarding equal

treatment of member States by the Commission," a source told MNI.

     The discussion is supposed to focus on the fiscal rules of the "preventive

arm" of the Stability and Growth Pact, i.e the rules applicable to countries who

public deficit is below the EU legal threshold of 3% of GDP. 

     These countries indeed have to comply with a "structural adjustment path"

of 0.5 or 0.6% per year. France is already planning non-compliance, a structural

adjustment of only 0.1% of GDP in 2018.

     But beyond the preventive arm, the debate also raises the issue of the

"flexibilities" and of the "intelligent use" of the SGP rules. 

     The Commission did not sanction any member states in the recent years,

though France, Spain and Portugal clearly had to be fined according to the

rules, as they were above the 3% threshold. EU Commissioners said dialogue was

better, especially in the context of rising euroscepticism.

     But several EU officials told MNI that this "flexible approach" was killing

the rules, as it allows member states to break the rules without any kind of

punishment. 

     "Most of them are now following the rules but that's only because the

economic situation is better," said one of them. "But if the situation worsen,

they will break the rules and go for a larger deficit. Because the messages sent

by the Commission these last years is clearly : 'do it, we wont fine you'," one

said.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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