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Last Updated: Tuesday, 13 January, 2004, 16:05 GMT
EU takes budget battle to court
Euro coins
The European Commission has launched legal action to uphold the budgetary rules underpinning the euro.

The institution has asked the European Union's highest court to annul a decision by EU finance ministers to temporarily suspend the rules.

The move ups the ante in a row between the Commission and France and Germany, which have repeatedly breached EU limits on government spending.

If successful, it could pave the way for penalties against both countries.

Problematic pact

The decision in November to suspend the budgetary rules - set out in the so-called stability and growth pact - partly reflected reluctance on the part of other EU countries to penalise the eurozone's two most powerful members.

EU flags

The Commission had asked EU governments to back a recommendation ordering France and Germany to make deep spending cuts in 2004.

But Paris and Berlin argued that the pact's strict spending limits, which cap annual budget deficits at 3% of gross domestic product, should be relaxed during economic downturns.

The two countries are on track to breach the deficit ceiling for the third consecutive year.

Graham Watson, Liberal Democrat leader in the European Parliament, welcomed the Commission's move.

"Not taking legal action would mean tacitly accepting the decision of ministers to forget their responsibilities and throw out the rule book," he said.

It would be more useful to cooperate on cooperation instead of confrontation
Hans Eichel, German finance minister
There have been concerns that setting aside the budgetary rules could undermine investor confidence in the single currency.

Quick decision

But some analysts have warned that a politically charged confrontation between the Commission and EU governments could prove equally damaging.

The Commission said its legal challenge was intended to clarify whether the finance ministers' decision to suspend the pact was in line with EU law.

"It is our role as guardian of the treaties to ensure that treaty procedures are upheld," a spokesman said.

The institution has asked the European Court of Justice (ECJ) to consider the case under its fast-track procedure, which could result in a final ruling within three to six months instead of the usual two years.

German finance minister Hans Eichel said the legal battle could delay urgently-needed structural reforms aimed at kick-starting Europe's stagnant economy.

"With a view to the tasks before the European Union in the near future, it would be more useful to cooperate on cooperation instead of confrontation," he said.

France and Germany's refusal to rein in their spending has provoked anger among some smaller EU countries which have pushed through painful austerity programmes in order to comply with the pact.

Ironically, the rules were introduced during the run-up to monetary union largely at the insistence of Germany, which was worried that smaller EU countries could not be trusted to maintain fiscal discipline.


WATCH AND LISTEN
The BBC's Stephen Sackur
"This dangerous division has been pounced on by eurosceptics"



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