LONDON (MktNews) - The European Union should take account of where member states are in the business cycle when assessing their fiscal positions, UK Chancellor Gordon Brown will impress upon his EU counterparts at Ecofin on Monday.
In Brown's view, judgements under the EU's Stability and Growth Pact which are made on the basis of cyclically-adjusted fiscal data will enable the pursuit of more sensible fiscal policies. For example, avoiding a squeeze on fiscal policy at a time of low growth.
The UK Treasury is anxious to avoid giving any impression that Brown favours any loosening of the Stability and Growth Pact's fiscal discipline. The stress is on a more economically rational approach that has the support of central bankers.
Nor is the aim to reopen the tortuously-negotiated Stability and Growth Pact, but rather to adjust the way it is applied. Some member states still do not include cyclically-adjusted fiscal data in the macroeconomic programmes they submit to Brussels even though the Broad Economic Guidelines agreed between the member states stipulates that they do so.
For the UK, the Stability and Growth Pact was born of rigid German fiscal principles and policy on the Pact's application in practice continues to evolve. That said, no suggestion is being made that the UK government is making its views about the Stability and Growth Pact a condition for possible EMU entry for the UK.
In fact, the UK believes the tide is moving its way in the EU on getting the principle of cyclically-adjusted fiscal data accepted, though a debate continues with the European Commission on the soundness of its techniques for cyclically-adjusting member states' fiscal numbers.
Events are said to be helping the UK case, such as the way Ireland's fiscal plans, recently criticised for laxity by the European Commission, do not pose so much of a problem when looked at on a cyclically-adjusted basis.
Brown is probably still smarting from the European Commission's mild criticism at the last Ecofin of his own fiscal plans, where an acceleration in public spending moves the public accounts into deficit in the outer years. He wants the Commission to accept that stable macroeconomic policies can and should "recognize the importance of public investment in infrastructure, education, science and innovation."