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Last Updated: Tuesday, 15 July, 2003, 05:32 GMT 06:32 UK
Chirac's budget plea creates EU storm
German and Dutch finance ministers at meeting in Brussels
Ministers are at odds over the rules
France's call to ease the eurozone's strict budget rules has created an uproar at the meeting of eurozone finance ministers in Brussels.

In his traditional Bastille Day interview, President Jacques Chirac called for a softening of the so-called Stability and Growth Pact which aims to keep public debt levels in check and maintain confidence in the euro.

"This is July 14, the day the Bastille was stormed, and now it's the day the stability pact has been stormed," said Dutch Finance Minister Gerrit Zalm angrily going into the meeting.

"The storming of the Bastille was a better idea."

"We have no room for softening the pact, not even temporarily," said Finnish finance minister Antti Kalliomaki.

"We shouldn't even be discussing this - it's one of the pillars of our economic policy and the single currency," said Austria's economy minister Karl-Heinz Grasser.

Germany stops short

The row over the stability pact has been raging for months, reaching a climax when the president of the European Commission called the rules "stupid" and then backtracked furiously.

STABILITY AND GROWTH PACT
12 member countries
Signed in 1997
Budget deficits must be within 3% of GDP
60% limit for government borrowing
European Commission can fine those in breach of pact

The rules - which dictate that a budget deficit cannot exceed more than 3% of national economic output - were designed to help regulate the economies of the 12 nations that use the euro.

But, with Germany and France in particular suffering from an economic slowdown, these countries have already exceeded the limit in order to stimulate growth.

France, the eurozone's second biggest economy, had a public deficit of 3.1% in 2002 and the European Commission's provisional forecasts see it rising to 3.7% this year and 3.6% in 2004.

Germany, meanwhile, has just initiated hefty tax cuts in order to spur growth, but insists it can still keep its deficit below 3%.

"Stability is not the priority right now," said German Finance Minister Hans Eichel, "we need growth."

But he stopped short of echoing President Chirac's call for a relaxing of the rules, saying the finance ministers knew how to apply the rules in a "reasonable and coordinated way".

Prior to Mr Chirac's comments, the ministers had been hoping to avoid discussing the controversial pact again, leaving it for the autumn agenda.

Then ministers will have an even tougher decision to make - whether to impose hefty fines on those countries who continue to offend.




SEE ALSO:
Chirac seeks softer budget rules
14 Jul 03  |  Business
EU acts on French deficit
02 Apr 03  |  Business
German budget '15bn euros short'
25 May 03  |  Business
German businesses predict recovery
25 Jun 03  |  Business


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