Germany defended a push by the big euro zone economies to loosen EU budget discipline rules as finance ministers gathered in Brussels today for preliminary talks on revamping the tattered Stability and Growth Pact.
German Chancellor Gerhard Schroeder, whose country has bust the Pact's public-sector deficit deficit limit for three years running along with France, outlined Berlin's position in Financial Timesnewspaper.
"Difficult negotiations await ... strategies for reform must reflect the fact that it is not just a stability pact, but also a growth pact," he said, arguing for less stringent application of the disciplinary process, known as the excessive deficit procedure.
He said the 3 per cent deficit cap was "inadequate" as a mechanical rule and that countries should not be taken to task for breaching it if the general economic climate was stagnating or if they were implementing reforms that cut short-term growth.
The European Commission said Mr Schroeder's comments were an important contribution but declined to say more while Germany's Bundesbank issued a statement repeating central bank fears that the ideas being floated would "decisively weaken" the Pact.
The ministerial meetings today and tomorrow have more on their plate than the EU Stability and Growth Pact amid continued questions over the strength of the 12-nation area's economy.
For example, France's central bank said today it expected lower growth than the country's government is banking on to get its deficit back within bounds. Forecasts are for growth of around 2 per cent this year, little better than 2004 estimates, and ministers may reaffirm their view that any further sharp rise of the euro against the dollar would be undesirable due to the hit on exports.
They did just that last December but this week's meeting is their last before the February 4th-5th meeting of Group of Seven ministers in London, where the continental Europeans want to press the United States for action to stabilise the situation.