EC on government finance discipline

EC on government finance discipline


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The European Commission adopted a report on government finance in Germany as a first step of the Excessive Deficit Procedure (EDP). It was a clear-cut decision by the executive body of the European Union in order to convey the message to all member states that the discipline in government finance will be maintained. And Germany is the case for the Commission to show everybody its decisiveness. France will follow. If the two largest countries of the Union are forced to obey Brussels, there will be no other dissident member states trying their luck.


The report that was adopted constitutes the first step of the EDP provided for by Art. 104.3 of the Treaty. The EC has initiated the EDP for Germany, as the autumn forecast shows a general government deficit of 3.8 percent of GDP for 2002. This deficit forecast clearly indicates the risk of an excessive deficit, as it exceeds by a large margin the Treaty reference value of 3 percent of GDP.


As a second step, the Commission will request that the Council of economic and finance ministers make a decision.


By following the Article 104 procedure, the Commission is, like in the case of Portugal, honouring its commitments laid down in the European Council Resolution on the Stability and Growth Pact for a strict, timely and effective functioning of the pact. If the countries that run large deficits do not comply with the instruction they will be made to pay a fine as large as the percentage of the deficits. To give an idea of the magnitude of the fines it must be reminded that those percentages are referring to the country’s GDP.

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