European Union finance ministers have been told that they may have to abandon plans to reform the Stability and Growth Pact after a nine-hour meeting in Brussels ended in disagreement.
Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the EU Presidency, told the ministers that they would have to leave the EU's budget rules unchanged if they fail to agree a reform package at an emergency meeting on March 20th.
"I wouldn't rule out us being left with the pact as it is. I have no desire to replace a pact which works badly with a pact that gives the impression of working but that will work badly later," he said.
Mr Juncker was unable to persuade all member states to accept a proposal for a more flexible interpretation of the budget rules.
Under the proposal, countries such as the Republic, with high economic growth and low public debt, which now have to balance their budgets, would be allowed to run a budget deficit of up to 1 per cent of GDP if they were investing in infrastructure.
The Minister for Finance Brian Cowen said that the change could release up to €1.5 billion each year for spending on roads and other transport projects.
"You'd have that option and that can be a mix of current and capital. What we're saying is that we have a capital requirement in infrastructure deficit that we're trying to meet," he said.
Mr Cowen said that the State's low public debt ratio of 30 per cent of GDP ought to be taken into account in assessing the Government's compliance with EU budget rules. He declined to say if the Government would actually use all the extra money available to it if a change in the rules is agreed.
"We're saying that, in the context of workable reforms of the pact, you take into account debt sustainability... We would like the option to be available to us if we think it's the prudent thing to do," he said.
The Economic and Monetary Affairs Commissioner, Joaquin Almunia, offered a gloomy verdict on the overnight reform talks among euro zone finance ministers.
In some issues we are going backwards," he said.
Mr Juncker wants EU leaders to sign off on a reform of the pact at a meeting in Brussels on March 22nd. The reform was precipitated by a finance ministers' decision in November 2003 to suspend the rules so that France and Germany could breach the budget deficit limit of 3 per cent of GDP for the third successive year without incurring any sanction.
The latest compromise proposal expands the definition of the "exceptional circumstances" under which a member state can exceed the budget deficit limit.
Germany wants the continuing cost of its national reunification in 1990 to be taken into account in assessing an excessive budget deficit. Most other countries regard such an exception as a step to far, a view apparently shared by Mr Juncker.
Mr Juncker was due to meet German Chancellor Gerhard Schröder last night and is expected to discuss the reform proposals with other EU leaders during the next two weeks.
Some countries, led by Austria but including some new member states that have not yet adopted the euro, are resisting any significant loosening of the budget rules.
The European Central Bank has warned that changing the rules could undermine the stability of the EU's single currency.
