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European Court Gets Tough on France and Germany - 2004-07-13

The European Union's highest court has annulled a controversial decision by EU finance ministers to suspend disciplinary action against France and Germany when they violated a budget pact that underpins the Euro currency.

The European Court of Justice in Luxembourg said Tuesday that the ministers failed to respect the rules when they suspended disciplinary action against Germany and France.

In a statement, the court said that the ministers cannot depart from the rules laid down by the treaty or those which it sets for itself. However, the court also said that the responsibility for making EU member states observe budgetary discipline lies essentially with the ministers.

The ruling affects the credibility of the Stability and Growth Pact that underpins the Euro currency used by 12 EU countries. All those nations are legally bound by the pact to limit their budget deficits to three percent a year. But France and Germany, which both have economic troubles, have violated the limit since 2002.

Instead of imposing sanctions, EU finance ministers last November recommended that both countries end their excessive deficits by 2005. The ministers could have imposed fines on France and Germany, but they said they would hold off on disciplinary action for the time being.

Daniel Gros, director of the Center for European Policy studies in Brussels, says the court ruling will have little effect on the powers of the council of ministers.

"De facto, the court has reaffirmed that if it comes to imposing fines and really putting some bite into the excessive deficit procedure, it is the council that has the last word," said Mr. Gros. "But this ruling also says that the council cannot use just any procedure it wants. Therefore it restricts, a bit, the freedom of maneuver of the council."

The European Commission, which oversees the EU pact, brought the case against the finance ministers. Mr. Gros says that in the short run the ruling is a significant moral victory for the Commission, but in the long term it will have only a marginal impact on the balance of powers between the council and the Commission.

But other analysts say the ruling will strengthen the Commission at a crucial time, because it expects half of the 12 Euro zone countries to run deficits above the EU limit this year.