The European Commission yesterday maintained its opposition to any swift change to the Stability and Growth Pact, as problems for the budget-control mechanism grew on several fronts.
Despite calls from Italy for more flexibility and news that France doubts it can balance its books by 2004, Mr Jonathan Faull, chief Commission spokesman, maintained: "We don't see any need to change the pact and the rules, and people know what the rules are."
Normal procedures would be used to analyse countries' 2001 budgets, a process that begins in the next few days, although member-states were free to suggest new methods in the future, he said.
The pact, intended to ensure countries that qualify for monetary union maintain budgetary discipline, has been refined since its inception in 1996-97, notably by an agreement last year to take economic downturns into account. But the pressure it has faced this summer has been unprecedented.
Italian leaders have barraged the Commission with calls for more "flexibility" particularly to exclude EU-backed investments when calculating deficits.
This week, French Prime Minister Mr Jean-Pierre Raffarin voiced his doubts on whether his country's economy would grow by 3 per cent next year, which the government judges necessary to meet its commitment to balance the budget by 2004. Portugal has revised its budget deficit for 2001 upwards to as much as 4.1 per cent of GDP, well in excess of the pact's limit of 3 per cent.
And falling tax receipts in Germany have led to fears the country may also breach the 3 per cent limit. Barclays Capital, the investment banking division of Barclays Bank, forecasts that this year's German deficit will be 3.4 per cent of GDP.
The Commission, the guardian of the pact, sees the issue as one of credibility. Mr Pedro Solbes, Economic and Monetary Affairs Commissioner, has suggested that countries, like the Republic, could be allowed more latitude to invest when they have low debt. But that is not the case in Italy, which has debt of more than 100 per cent of GDP.
Mr Romano Prodi, Commission President, has also set up a high-level study group to look at all aspects of economic policy, including the pact, but it will not report until next year.
Italy's deputy economy minister, Mr Vito Tanzi, told daily newspaper Corriere della Sera that Italy wanted state investments to be excluded from the pact's definition of public spending.
"Investments by public institutions in a private form are stripped out of the spending figure," Mr Tanzi said. "I think that if they correspond to a solid financial project, state investments could also be stripped out of the figure."
The right-wing Italian coalition, in power since May 2001, has drawn up 19 public works projects costing €126 billion over 10 years. - (Financial Times Service, AFP)
