European Union finance ministers erred in law when they decided not to punish France and Germany for breaching fiscal discipline, according to legal advice from within the European Commission.
Mr Pedro Solbes, the European Commissioner for Economic and Monetary Affairs said yesterday that the Commission would decide next Wednesday whether to go to the European Court of Justice to challenge the outcome of the finance ministers' November meeting.
At the time the finance ministers were judged by outside observers to have "killed off" the Stability and Growth Pact, the rules intended to maintain fiscal discipline on national governments. Mr Solbes said a court ruling "could be useful".
The Minister for Finance, Mr McCreevy, who strongly backed France and Germany in their clash with the Commission, stood by the decision again yesterday. He told members of the European press visiting Dublin that the finance ministers had taken their own legal advice before deciding to suspend the mechanisms of the pact. The advice received supported their decision.
Mr McCreevy said: "I'm very understanding of the Commission's view of its role as a guardian of the treaties but there are two sets of legal advice." He added: "I firmly believe the pact is stronger for what happened."
In Brussels, Mr Solbes refused to disclose details of the opinion given him by the Commission's legal service but hinted strongly that he favoured a challenge.
The Commission declared at the time the decision was made that the finance ministers' conclusions were outside the spirit and letter of the treaty and of the Stability and Growth Pact, he said.
"This view is confirmed by our legal service following a careful analysis," he said.
"The council did not contest the economic arguments nor the substance of the recommendations presented by the Commission, but did not take its decisions on the basis of the Commission recommendations," he said.
He said a ruling from the Court of Justice "could be useful" in clarifying the framework for future budgetary surveillance, adding that there was a need for clarity and legal certainty about the procedures of the Stability and Growth Pact.
But Mr Solbes will need the support of his colleagues for such a challenge, among them Mr Romano Prodi, the Commission president who famously criticised the pact as "stupid". Some of them might be reluctant to reopen last year's trial of strength between the finance ministers and the Commission, which the Commission lost.
Undaunted, Mr Solbes said that early next month he would come up with further proposals to improve economic surveillance. Fiscal policy would be placed within the context of general economic policy surveillance so as to "combine discipline with growth".
He would build on his suggestions for a more flexible interpretation of the pact, presented last year, he said. The plan is to focus attention not just on the nominal budget deficit but also on the sustainability of public finances and the level of debt.
It will fall to Mr McCreevy to decide whether to promote those proposals in the Eurogroup and the council of finance ministers.
Mr Solbes also announced the results of the Commission's assessment of the public finance plans of Austria, Denmark, Finland and Sweden. He made clear that, despite the setback with France and Germany, the Commission was not surrendering its role in conducting surveillance.
The four broadly favourable assessments will now be forwarded to the council of finance ministers, under the chairmanship of Mr McCreevy, for its meeting on January 20th.
The more delicate challenge for Mr McCreevy will be the second batch of assessments, which the Commission will consider on January 28th and the finance ministers on February 10th. The 10 countries to be assessed include two highly problematic cases, France and Italy, as well as Ireland.
