European Commission president, Mr Romani Prodi, has called for more flexible rules governing the 12-nation euro zone, amid warnings that war on Iraq could throw the region's economy further off course.

Mr Prodi's comments to the European Parliament came after Monetary Affairs Commissioner Mr Pedro Solbes gave the first indication of a possible relaxation of the Stability and Growth Pact should war break out.

The head of the European Union's executive arm said an EU summit in Brussels next month would be an occasion to clarify the bloc's range of economic policy instruments.

"We need to explain that these instruments, together with the Stability and Growth Pact, form a coherent and effective whole," Mr Prodi said.

"That is the aim of our proposals for a new interpretation of the criteria for applying the stability pact," he said, referring to changes to the pact proposed by the European Commission in November. "This interpretation pays more attention to the economic factors specific to each country and the need to finance the reforms planned under the Lisbon strategy."

Mr Prodi has previously labelled the 12-nation euro zone's stability pact as "stupid" for being too inflexible in its strict guidelines for the participating economies.

Mr Solbes, the stability pact's guardian, said earlier this week that the much-maligned rules could be relaxed in the event of war in Iraq.

Nine leading European economists voiced their support for an overhaul of the pact yesterday as they called on the European Central Bank and EU governments to consider changing their policy yardsticks in the face of a third year of flat euro-zone growth.

The European Economic Advisory Group said, even without a war in Iraq, the euro-zone economy would grow at most 1.4 per cent in 2003, below potential for the third year in a row and a rate too slow to cut unemployment. "The scenario used in the above growth forecast is somewhat optimistic and may fail to materialise," the group, set up by Germany's influential Ifo institute, said in a report.

Growth could be as low as 0.9 per cent if an Iraq war led to high oil prices and hit confidence, it added, partly blaming the EU's policy-making framework for weak growth, and suggesting the ECB consider redefining its "price stability" goal as a rate of inflation of 2.5 per cent rather than zero to 2 per cent as currently.