War may see 'stupid' euro rules lifted

Pedro Solbes: "Exceptional circumstance"

Controversial rules designed to ensure housekeeping among eurozone countries may be scrapped in the event of a war against Iraq, the European Commission has said.

Some eurozone countries have become increasingly critical of the so-called growth and stability pact, drawn up to underpin the strength of the euro.

Romano Prodi: Pact "stupid"

Tough government financial rules set down in the pact have been breached by countries including Germany - one of the main architects of the agreement - leaving states open to fines, and fuelling calls for reform.

Commission President Romano Prodi in October famously condemned the pact as "stupid".

Germany's budget deficit reached a level equivalent to 3.75% of the country's economic output last year, forecasts say, compared with a Brussels target of 3.0%.

France has also been handed an "early warning" for letting its deficit approach the limit.

Get out clause

But EU Monetary Affairs Commissioner Pedro Solbes said on Tuesday that war against Iraq could see the cap suspended.

He noted that a 1997 agreement behind the pact allowed for changes in "exceptional circumstances".

"If war is not an exceptional circumstance I wonder what is an exceptional circumstance," Mr Solbes told reporters.

"In my opinion, war has within itself sufficient elements to start a debate on certain circumstances."

But Juergen Stark, vice president of the Bundesbank, Germany's central bank, tempered optimism by saying that a war might not represent an excuse to suspend action.

"I believe that the effects of a short war would not be so dramatic as that they should be treated as an exception," Mr Stark told news agency Reuters.

"What is key is whether a war would lead to a heavy recession in Europe - if that happens, then you'd have an exception."