Letter from Lord Grenfell to Ms Ruth Kelly
THE STABILITY AND GROWTH PACT
Thank you for the Government's response to our
report The Stability and Growth Pact (Session 2002-03, Thirteenth
Report, HL 72). I have to say that the Committee found the Government's
response disappointing. Little, if any, attempt was made to address
directly the points made in the Committee's report. The response
largely consisted of repetitions of evidence already given to
the Committee before its report was prepared.
I am therefore now writing to you to ask you
to clarify the Government's position on the Stability and Growth
Pact. The Committee would like you to answer the following questions.
THE 3 PER
In paragraph 165 we concluded that "when
monitoring Member States' compliance with the 3 per cent deficit
criterion, the Commission should continue to use the actual deficit-to-GDP
ratio." Do the Government agree with this conclusion?
In the same paragraph, we concluded that "the
Council's decision whether or not to implement the excessive deficit
procedure, once a country has breached the 3 per cent reference
value, should take account of the underlying economic situation,
including the Member State's position in the economic cycle and
possibly its level of debt." Do the Government agree with
the Committee on this issue?
In response to paragraph 165, you quote your
evidence to Sub-Committee A on 28 January 2003 ". . . it
is now the case that the Council and the Commission take into
account not just the hard and fast 3 per cent rule, but also take
into account the debt positions of different countries and also
the cyclical factors; and the use of automatic stabilisers has
been specifically mentioned . . . the 3 per cent reference value
has been given operational use through a set of guidelinesthe
Code of Conduct, agreed in 2001which suggests there is
room for flexibility within it." The Committee would like
you to give specific examples of situations where the Council
has not treated the 3 per cent deficit criterion as a "hard
and fast" rule. Furthermore, can you say whether there has
been a case when the deficit of a Member State has breached the
3 per cent mark and when that Member State has not been judged
to have an excessive deficit?
In paragraph 167, we said that it "is important
to tackle the fact that the Stability and Growth Pact works asymmetrically
across the economic cycle. Furthermore, countries need to be encouraged
not to act pro-cyclically in times of boom. The Committee does
not, however, consider that the Commission's proposal to apply
the sanction of the excessive deficit procedure in good times
would be the most effective way of achieving these twin objectives.
The Committee shares the concern that the rules of the Pact should
not be complicated. The number of situations that lead to the
formal sanctions of the excessive deficit procedure being invoked
should not be extended, or these measures will lose their force."
Your response says that the automatic stabilisers
should "operate fully and symmetrically across the cycle".
We support this. You then go on to mention the Ecofin report,
which says that "Member States should avoid pro-cyclical
policies, especially when growth conditions are favourable."
This quote does not address the second issue in paragraph 167,
namely, what happens to those Member States that do adopt pro-cyclical
policies. Would the Government support the use of the excessive
deficit procedure in such a situation? Do the Government agree
with the Committee that if the number of situations that lead
to the formal sanctions of the excessive deficit procedure being
invoked are extended, then these measures will lose their force?
In paragraph 170, we concluded that the "Treaty
should be amended to grant the Commission the power to issue early
warnings directly to Member States without recourse to the Council."
You reply that the Government remain "very concerned"
about institutional changes "which would increase the role
of the Commission in enforcing the disciplines of the Pact".
However, our proposal would not affect the enforcement of the
Pact, which we agree should remain under the exclusive control
of the Council (as we make clear in paragraph 171). There is surely
a distinction between monitoring the Pact and enforcing it. Our
recommendation pertains only to the former and is therefore, as
we said in our report, "in line with the monitoring and surveillance
functions of the Commission." Do the Government reject the
distinction between the monitoring role that the Commission currently
caries out, maintaining surveillance over the Pact, and the enforcement
of the Pact through the implementation of sanctions (of which
the early warning is not one)?
The Committee would like your reply to arrive
by no later than 3 June, as Members may wish to return to these
issues and the Government's response in the debate in the House
on 4 June.
I am copying this letter to Jimmy Hood MP, Chairman
of the House of Commons European Scrutiny Committee; Dorian Gerhold,
Clerk to the Commons Committee, Michael Carpenter, Legal Adviser
to the Committee; Les Saunders, Cabinet Office; Jay Amarasena,
Scrutiny Co-ordinator, HM Treasury; David Martin, Select Committee
Liaison Officer, HM Treasury; Klaus Regling, Director General,
Directorate-General Economic and Financial Affairs, European Commission;
Dr Gunthe Grosche, Head of the Secretariat of the Economic and
Financial Committee, European Commission; Peter Hain MP, UK Government
Representative to the Convention on the Future of Europe; Gisela
Stuart, MP, Member of the Praesidium of the Convention and UK
National Parliament Representative; and to David Heathcoat-Amory,
MP, Lord Maclennan of Rogart and Lord Tomlinson, UK National Parliament
Representatives on the Convention.
13 May 2003