EMU: PRODI SEEKS MORE CLOUT FOR COMMISSION IN STABILITY PACT.

Romano Prodi says it is applying the Pact in a rigid and dogmatic way that is "stupid", not the Pact itself. While the Pact is straightforward, the reality is still complex. In view of the global economic downturn, he believes that if the European institutions had tried to impose objectives that were "no longer realistic", they would have been accused of endangering growth and jobs. This is why he backed the proposal presented in late September by Pedro Solbes, European Commissioner for Economic and Monetary Affairs, with a view postponing the target of balanced government spending positions by 2006 in exchange for a minimum 0.5% of GDP per annum reduction in their underlying budgetary positions, starting from 2003. All Member States, barring France, have backed this idea.

However, he says "new and better rules are not enough". There has to be a more intelligent and more effective co-ordination of economic policies, including the necessary structural reforms. Reading the implications of the negative experience in February, he stresses that "co-ordination of economic policies must be clearly defined". Each Member State has to adopt the economic policy measures necessary "to prevent its economy from having adverse effects on the economies of the other Member States".

--Last February, the Commission rolled out the early-warning system to apply it to Germany and Portugal, when their budget deficits strayed far from the aims set forth in their updated Stability Programmes for this year. However, the Council did not adopt the relevant Recommendations. Since then, Portugal has been beholden to a so-called "excessive deficit" procedure. Its shortfall in 2001 exceeded the 3% of GDP limit. The German shortfall is expected to overshoot it this year.--

Mr Prodi acknowledged that budgetary policy is the responsibility of the Member States. "That is true today and it will continue to hold true in future." However, in parallel with a centralised monetary policy conducted by the European Central Bank, he said economic policy co-ordination, required a "strong central authority to give guidance to assist them where budget policy remained the responsibility of the Member States". The Commission President believes the obvious candidate for this role is his own institution. "The Commission's sole mandate is to act in the common interest of the EU while respecting the full equality of all the Member States", he recalled. Mr Prodi concluded by seeking the...