101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey

required. At this stage the Commission asked the Council to issue a new recommendation to
the two countries, requesting further action on top of that included in the 2004 budgets while
at the same time postponing the deadline for meeting the 3 % limit by one year, to 2005, in
view of the weak economic outlook. However, at the meeting on 25 November 2003, the
Council decided not adopt the recommendations and put the procedure on hold instead. The
decision was not unanimous. Most of the smaller Member States (incidentally usually
fulfilling the ‘close to balance’ requirement) voted in favour of the Commission’s
recommendation but the larger countries (France, Germany, Italy and the UK) formed a
blocking minority.

Instead of adopting the formal recommendations prepared by the Commission, the Council
issued its own conclusions which were broadly in line with what the Commission had
requested. The crucial difference was procedural. Had the Council adopted the Commission’s
recommendation and France and Germany failed to comply, the next step would have been
sanctions in the form of a deposit.¹⁰

The Commission judged that it could not accept the SGP legislation being disregarded and
asked the European Court of Justice to bring clarity to the procedure by assessing whether the
Council had the right to take decision in this way. The Court presented its verdict in July 2004
and ruled that the Council did not have the right to sidestep the legal procedures.

In the meantime, the procedural activity had intensified and broadened as weak economic
developments increasingly impacted on budget positions.¹¹ The increase in procedural activity
(at the time of writing, outside the euro area, six of the new Member States have also been put
in excessive deficit) and the clarification of the legal status of the SGP by the European Court
of Justice cleared the way for a broader, formal reform debate. On 3 September 2004, the
Commission presented a communication on how to improve the SGP (called ‘Strengthening
economic governance and clarifying the implementation of the SGP’) proposing four main

¹⁰ This may be converted into a fine after two years if the deficit remains excessive.

¹¹ On the bright side, Portugal, on the back of massive one-off efforts, managed to get back below the 3% ceiling
in time and its excessive deficit procedure was lifted (this was of course a short-term success as Portugal is now
back in excessive deficit). In April 2004, even the Netherlands was put in an excessive deficit position (which
was abrogated already in May 2005). Greece has dived deepest into the EDP sea, its fall highlighting both the
accounting and electoral dimensions of the SGP. It was put in excessive deficit in July 2004 after a revision of its
reported budget data, which have been repeatedly revised since then. In April 2004, the Commission proposed

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