The European Union could suspend strict budget rules governing members of the euro zone if war starts against Iraq, the Commission confirmed yesterday. The EU's Stability and Growth Pact allows the Commission, in "exceptional" circumstances, to suspend the requirement for member-states to keep budget deficits below 3 per cent of GDP.
The Economic Affairs Commissioner, Mr Pedro Solbes, said yesterday that war in Iraq could be such an exceptional event.
"If war is not an exceptional circumstance I wonder what is an exceptional circumstance. In my opinion, war has within itself sufficient elements to start a debate on certain circumstances," he said.
Germany, which has already breached the EU's budget rules, yesterday denied a report that it had engaged in talks with France and Britain about suspending the pact in the event of war. A German finance ministry spokesman said that any change in the rules would have more to do with slow economic growth in the euro zone than with the threat of war.
"We are not talking at the moment about weakening or reinterpreting the stability pact, but how to adapt it to the current economic situation. This applies also to the possibility of an Iraq war, but crisis planning is not at the moment the central scenario," he said.
France, which is close to breaching the 3 per cent budget ceiling, also denied that there was a co-ordinated campaign to suspend the pact. A German employers' organisation yesterday accused the Berlin government of attempting to use the threat of war as an excuse to loosen the budget rules.
Many economists and policy-makers believe that the Stability and Growth Pact is too rigid and is strangling economic growth by imposing too strict a budget discipline on euro zone governments. The Commission President, Mr Romano Prodi, has described the pact as "stupid".
