Slovakia gives new EU Growth and Stability Pact rules cautious welcome

European Union leaders recently loosened up their budget deficit rules. The EU's Growth and Stability Pact has been modified to make it easier for countries with excessive budget deficits to avoid sanctions. In Slovakia the new rules have been given a cautious welcome.

Photo: European Commission

The European Union has decided to change the terms of its so called "Growth and Stability Pact". Adopted in 1997 as a part of the procedure for introducing the EU's single currency, the euro, the pact has one big concern to offer to the sound budgetary policies of the Member States. They need to keep the public deficit under 3 percent of the annual GDP. It was easier said than done. The pact quickly came under fire from economists who saw it as a rigid tool because it did not allow governments too much freedom and creativity in dealing with their spending policies. France and Germany began pushing for greater freedom to break the rules simply because they were not able to keep them for the last three years. This was being strongly opposed by smaller member states, such as the Netherlands and Austria.

In the end the bigger states won. The public deficit limit stays at 3 percent but countries will be allowed to break this level in special circumstances and for a short period of time.

"We are satisfied with the fact that the preventive measures were strengthened so governments have more tools to avoid higher budget deficit situations. We are also glad that the pension reform and its burden on the budget were clearly defined. On the other hand I must say that I prefer a more flexible document that everybody will respect instead of a strict one that nobody cares about."

That was Ivan Miklos, Slovakia's Finance Minister expressing relief that his government's pension reform could go ahead in a less stressful atmosphere. As the state guarantees 100 percent of the sum that people contribute to private pension funds, the pension reform will be a burden for the state budget until 2050. Slovakia would like to adopt the euro in 2008-2009 therefore it has to keep its deficit under the 3 percent of the GDP level. The decision of the EU that the cost of the pension reform will not be included in the budget deficit has proved to be of great help for the government in Bratislava.

"We already had a strategy how to deal with a deficit even before but the new rules show that those who advocate a more flexible system especially for the new member states like Slovakia, were proved right, says Miklos."

He added that more relaxed budgetary policies should not make governments in the larger EU states such as Germany and France, keep on avoiding reforms that aim at cutting social benefits.