EU Eases Budget Deficit Rules

BRUSSELS -- European Union newcomers expressed satisfaction Monday with an easing of the bloc's budget deficit rules, saying it could help their bids to join the bloc's single-currency euro zone.

Poland, the biggest new EU entrant, said the reform of the Stability and Growth Pact agreed by finance ministers may help the country meet euro zone entry criteria in 2007 ahead of a possible adoption of the currency in 2009.

Polish Finance Minister Miroslaw Gronicki told reporters the special treatment of pension reform costs granted under the revamped pact should prompt the EU to end its excessive budget deficit procedure against Poland in 2007.

Asked if this would help Poland to achieve its tentative goal of joining the zone in 2009, he said: "Yes, it would."

"The situation looks better than several months ago when we started negotiations," he said. "The costs of reforms will be taken into account in the evaluation of the budget deficit, although in a discretionary way."

Slovak Finance Minister Ivan Miklos also expressed satisfaction with the deal but told reporters his country's goal of joining the euro zone in 2009 was secure, regardless of the special treatment of pension reform costs.

"It is not easing our situation because we have already postponed our euro entry date to 2009 from 2008," Miklos said.

Nevertheless, he said that under the pension reform deal the EU could end its excessive deficit procedure in 2006 rather than in 2007 as Slovakia had expected until now.

Hungary, Poland and Slovakia had originally demanded that pension reform costs simply be excluded from the budget deficit, which the Stability and Growth Pact caps at 3 percent of gross domestic product.

The ministers finally agreed that such expenditure could be treated only as a mitigating factor in assessing whether a state should face disciplinary action if it breaches the deficit cap. The newcomers believe a lack of disciplinary action may amount to meeting the fiscal criterion of joining the euro zone.

The EU's statistics office, Eurostat, has allowed Poland and other newcomers to book transfers to newly created private pension funds as part of public finances only until March 2007.

Among the EU's 25 members, pension reforms have been implemented by Slovakia, Hungary, Poland, Sweden and Britain. Economists say other large EU members will also have to overhaul their pension systems to better cope with the effect of aging populations.

In assessing whether a country should face disciplinary action, the European Commission will deduct the pension reform costs from the deficit for five years -- all of them in the first year, then 80, 60, 40 and 20 percent in the following years.