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Last Updated: Tuesday, 13 January, 2004, 21:51 GMT
Stage set for EU battle

By Tim Franks
The BBC's Europe Correspondent

European Union flag
This row goes to the heart of the EU

The row between the European Commission, and France and Germany over budgetary rules is about who holds what power - just as most political rows are.

But in its nature and in its potential significance, this is unprecedented.

France and Germany - the two big boys inside the single currency - are on course to break for the third year in a row the rules governing how they balance their books.

Under the rules of engagement for the euro - rules set out in eye-straining detail in the Stability and Growth Pact - repeated bad behaviour means a stiff course in fiscal discipline from the Commission - the officials who help run the European Union.

And if that does not work, then countries face enormous fines.

Legal principle

But at the end of last year, French and German finance ministers persuaded most of the other EU finance ministers that that prospect would be a bad thing - whatever the rules actually stated.

Cue much grumbling from the commission.

Michaele Schreyer, the budget commissioner, reckons the move was wrong in economic practice and wrong in legal principle.

Debt is simple, she says; if you don't deal with it now, you leave it for future generations.

Euro coins
Many believe the EU has more pressing concerns

And the law is the law is the law.

But most EU countries believe all that flies in the face of economic reality.

You do not force countries to raise taxes or cut public expenditure when they are tiptoeing out of an economic quagmire.

And there is concern that this legal action - unprecedented in its scale - will poison the political atmosphere inside the EU.

The German finance minister, Hans Eichel, has dismissed the commission's referral to the courts as "hard to comprehend".

Big risks

And even a few dissidents inside the Commission are arguing that the next several months would be better spent concentrating on reforming the much-derided Stability and Growth Pact rather than expending energy in the courtroom.

And that is forgetting the efforts to try to pick up the pieces of the proposed EU constitution, which fell apart last month.

There are big risks here for the Commission.

Win its case, and it is setting itself up for a big fistfight with the member states.

Lose its case and it may see its political authority, already bashed from several sides, dwindle further.

There is always tension between the different branches of the EU, but the sound you can hear is of the political tectonic plates grinding and scraping against each other in a way that could shape the bloc for years to come.

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

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