Germany and France were yesterday accused of trying to "kill" Europe's fiscal rules, as EU finance ministers met amid mounting political tension in the 12-country euro zone.
They claim to have found a legal loophole that might allow them to escape the threat of sanctions under the EU's Stability and Growth Pact.
But their manoeuvre has enraged the European Commission and some smaller countries, which claim it would destroy the pact's already weakened credibility.
Mr Karl-Heinz Grasser, Austria's Minister for Finance, yesterday urged his EU colleagues to stand up to pressure from France and Germany, the euro zone's two most powerful economies.
Speaking ahead of last night's meeting of the 12 single currency finance ministers, Mr Grasser said both countries must face the consequences of breaching the pact's deficit rules for three years in a row.
"We all are obliged for our own credibility and the credibility of the euro to find a way out," he said.
"The way out cannot be by killing the stability pact and putting one pillar of our monetary union at stake."
The 12 members of the euro zone are at the point where they must decide if they are serious about enforcing the pact, designed to enforce fiscal discipline across the euro zone.
They must decide this month - either today or more likely at their next meeting on November 25th - whether to support the European Commission's recommendation to start proceedings against France for its third breach of the pact in 2004.
It is the first time the euro group of finance ministers have reached this point.
Once passed, Brussels assumes powers to direct Paris on how to correct its deficit, and will require Paris to submit progress reports. Ultimately, fines can be imposed if it fails to comply.
Germany, which will also breach the pact's 3 per cent deficit rule for a third time in 2004, is about to find itself in the same position as France.
But rather than face the humiliation of having to submit to economic direction from Brussels, Germany and France are now trying to draw the stability pact's remaining teeth.
The two countries, who believe they have support from Italy, Luxembourg and Portugal, want the Commission to suspend enforcement proceedings and adopt a voluntary approach instead.
But the Commission insisted yesterday that such a step would be illegal under the EU treaty, and that it would not agree to this. - (Financial Times Service)
