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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (26130)	3/22/2005 10:18:42 AM
From: mishedlo	Respond to of 116555

OUTLOOK EU summit to approve dilution of stability pact, rejigged reform plans Tuesday, March 22, 2005 5:07:26 AM afxpress.com -- by Victoria Main -- BRUSSELS (AFX) - EU leaders are due to agree to water down the stability and growth pact as well as to make their economic reform agenda less ambitious at their two-day summit starting today Last night's deal by EU finance ministers to introduce more flexibility to Europe's fiscal rulebook is expected to win the approval of the summit, for all the European Central Bank's warnings over the impact of the agreement on the outlook for interest rates Under the compromise drafted by the EU's Luxembourg presidency, Germany has won the right for its reunification costs to be counted as a mitigating factor in deficit calculations Equally, France has gained concessions on the treatment of its pension reforms in the enforcement of the pact's deficit limit of 3 pct of GDP The ECB, in the form of Luxembourg Central Bank governor Yves Mersch, lost no time in warning that the changes "will not be without consequence" for the bank's monetary policy. Mersch is a member of the ECB's rate-setting governing council Later, the bank issued a statement saying it "is seriously concerned about the proposed changes" The ECB added: "It must be avoided that changes in the corrective arm undermine confidence in the fiscal framework of the European Union and the sustainability of public finances in the euro area member states." And it called on EU countries "to implement the revised framework in a rigorous and consistent manner conducive to prudent fiscal policies" However, the European Commission and key member states such as high-deficit Germany and France welcomed the deal as an improvement on the status quo Commission president Jose Manuel Barroso said it is "a very positive agreement" that achieves a "better balance between stability and growth" He noted that the agreement not only leaves unchanged the pact's deficit limit and its debt ceiling of 60 pct of GDP, but it also retains the commission's right to initiate disciplinary action against countries that breach the rules The commission "stands ready" to exercise that power, Barroso pledged German chancellor Gerhard Schroeder, whose country had posed obstacles to a deal, described last night's outcome as "a good result", while French finance minister Thierry Breton said the pact will now become "political, economic and no longer technocratic" Even Austrian finance minister Karl-Heinz Grasser, a fiscal hardliner, said the agreement "is not the best solution I can imagine, but it's a result that can guarantee stability-oriented fiscal policy in the EU". In the other key agenda item, the summit leaders will agree to streamline the EU's economic reform programme agreed in Lisbon in 2000 so to make it more achievable A more contentious matter will be the problem of the EU budget for 2007-2013, which Luxembourg prime minister Jean-Claude Juncker has often warned will be harder to resolve than the stability pact debate Net contributors such as Austria, Britain, France, Germany, the Netherlands and Sweden want member states' contributions limited to 1.0 pct of GDP, a level which the commission's Barroso rejects as "not realistic" At least as thorny will be the summit's discussions on the commission's proposed liberalisation of Europe's service sector, which has drawn fierce opposition from France, in particular The commission has pledged revisions to the reform to take account of French concerns about the impact on jobs and labour conditions, but president Jacques Chirac has dismissed the mooted changes as "unacceptable" The issue has become embroiled in domestic French politics in the countdown to the country's May 29 election on the EU constitution, prompting an exasperated Barroso to call on its leaders to work to clarify public "misunderstandings" He said: "The French referendum is not on the services directive. It is up to politicians in France to explain that to the French people." The controversial US nomination of US deputy defence secretary Paul Wolfowitz to be the next World Bank president can also be expected to generate heated discussion at the summit, at least at tomorrow's parallel meeting of finance ministers In a letter to fellow heads of state, Juncker said that "the issues addressed by the finance ministers will include the presidential succession at the World Bank" following the end of James Wolfensohn's mandate this summer. Wolfowitz is considered a leader of the US hawks, who pushed for war in Iraq and argued that building a democracy there will spread reform throughout the Middle East, drying up support for extremist violence