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Wednesday, September 4, 2002
10:35 p.m.
EMU Stability Pact: more fun in prospect
Another quarter-twist on the rack for the euro in the past day or two.
The developing points of interest are which countries' budget deficits breach the Pact limits; what penalties (if any) are exacted as a result; and what types of 'Enron-style' accounting countries resort to to avoid such a breach.
Portugal seems certain to be on the list. And, according to its Finance Ministry, Germany will run the 3% of GDP standard pretty close, though (they say) it will stay the right side of the line.
The Italian deficit, too, will come close to, if not exceed, the 3% limit, the deficit for the first 8 months of 2002 being more than 60% up on the same period of 2001.
From the other side of the equation, Berlusconi is under pressure to stick to his tax-cutting agenda.
So, it seems, he will need the benefit of a tax amnesty (condono) as well as the proceeds of real estate securitisation (cartolarizzazione); and the EMU accounting standard used to calculate the 3% test is apparently somewhat less exacting than the domestic Italian standard (on which forecasts are based). (Berlusconi is saying he's ruled out an amnesty, though at least one minister has cast doubt on the fact.)
But, in order both to meet the 3% test and to provide a sufficient stimulus to the Italian economy via a tax cut, it must be doubtful whether such sums would suffice - or come in in time. Berlusconi needs to bust the Stability Pact; and there's no sign of the Commission shifting from its flat refusal to consider such a thing.
The Euroland economies till recently have been treading water with deficits in the big states already approaching the 3% level: the arbitrary tests imposed by the Pact limit the scope for a contra-cyclical stimulus package (of public spending or tax cuts or both).
Ranged against the large Euroland Pact 'sinners', the Finns and Irish have already joined the Commission in ruling out changes to the Pact, and the other 'good boys' are likely to agree.
The meeting of EU finance ministers at Copenhagen this weekend will give some indication of quite how far into farce this row will descend.
Schadenfreude alert!
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