Dutch finmin:Stability Pact reform talk should wait

Zalm, who will chair EU finance ministers' meetings in the second half of this year, also told Reuters that Italy would not deserve a budget warning recommended by the European Commission if it came up with convincing deficit cutting plans in July.

A stickler for budget discipline, Zalm took a different approach to reforming EU budget rules from German Chancellor Gerhard Schroeder, who said on Wednesday Berlin was open to discussing changes to the EU deficit limit that Germany has warned it might breach in 2005 for the fourth year in a row.

Zalm said he would want to see any revision of the Stability Pact focus on the need to balance budgets, or run surpluses, in good economic times. But discussions about any such change would only be credible when the bloc's economy had picked up.

"We should have a debate on how to keep discipline in economic upturns," he said in an interview.

"But it is not fruitful to talk about what we should do in an upturn when the upturn is not showing and (deficits) are over three percent" of gross domestic product, the EU cap.

The European Commission's official forecasts see deficits in six of the euro zone's dozen member states, including Germany and France, surpassing EU limits this year under current policy.

While Germany and France face domestic pressure to avoid tough budget measures, Zalm said budget problems had to be solved urgently, particularly as ageing populations would add to strains on public coffers early in the next decade.

"What Germany and France are doing is shifting problems to the future. Postponing these kinds of things is not a real solution," he said.


ITALY MUST CONVINCE

Turning to EU finance ministers' decision on Tuesday to defer a decision on whether Italy should be issued a budget warning, Zalm said the key was for Italy to draw up a plan to curb a deficit that might otherwise break EU limits.

"The most important thing is that Italy takes measures to stay below three percent. If they are convincing it is okay. If not we should give them (an early warning)," he said.

Ministers delayed the decision until July, the first month that the Netherlands will hold the EU's rotating presidency.

Budget discipline was also important for the 10 countries that joined the EU on May 1, all of whom aspire to enter the euro zone in the coming years, he said.

Zalm said these countries should bring budget deficits close to three percent of gross domestic product, the threshold for euro entry, before joining Europe's exchange-rate mechanism (ERM-2), the waiting room before adopting the single currency.

"If you are going into ERM-2, the idea is to go into the euro, so it is not useful if you have a budget deficit of 10 percent," he said.

"ERM-2 is not (going to) bring a lot of pleasure. If you join ERM-2, you must be confident you can keep the central parity you agreed without damaging the economy."




Source: Reuters