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Friday, September 19, 2003

Where's the S in the SGP?

Back to my comments yesterday on spin, the stability pact and confidence in our processes and our institutions. I am getting the distict feeling that one or two of the smaller states in the euro zone are begining to feel rather uncomfortable after Suday's vote in Sweden. Case in point, the Netherlands:

While many governments in Euroland are having difficultly finding the right balance between growth and stability when it comes to implementing the Stability and Growth Pact (SGP), the Netherlands have clearly chosen stability. The Dutch government announced drastic austerity measures in its 2004 budget, to keep the deficit from breaching the 3% of GDP Maastricht limit. Without these measures, the sharp deterioration in the economy would push the budget deficit up to 3.8% of GDP, according to government estimates. Unlike the big Euroland countries, such as Germany and France, which are facing similar budget deficits, the Netherlands are thus taking serious steps to abide by the limits set out in the Growth and Stability Pact. To leave some room for unexpected revenue shortfalls or expenditure overruns, the Dutch government has set itself a deficit limit of 2.5% of GDP. The efforts of the Dutch government are even more striking, given that the Dutch economy is significantly underperforming its euro area peers............

The measures announced by the Dutch government are in stark contrast to the fiscal policy measures planned by Germany and France, which will likely see their budget deficits breaching the Maastricht limit by similar amounts next year. The Dutch effort underlines the contrast between the big EMU countries, which are letting their fiscal policy slip in the face of the Stability Pact rules, and the efforts by the smaller countries to keep their finances in check. The Dutch Finance Minister, Gerrit Zalm, is a fervent supporter of the rules outlined in the Stability Pact. He recently underlined his resolve, by saying that his Ministry is looking into the possibility of bringing a case in front of the European Court of Justice, if Germany, France, or Italy were to breach the rules of the Stability Pact. After his threat to sue the EU Commission for not taking appropriate action under the Stability and Growth Pact last week, the 2004 budget presented today underlines that Mr Zalm takes the issue of fiscal consolidation very seriously.
Source: Morgan Stanley Global Economic Forum

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