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Last Updated: Friday, 3 September, 2004, 13:13 GMT 14:13 UK
Move to relax euro budget rules
Euro banknotes
The budget rules are designed to underpin the euro
The European Commission has proposed a partial relaxation of the eurozone's strict rules on public spending.

Under the proposals, eurozone countries would be allowed to run deficits above the current ceiling of 3% of GDP in the event of prolonged sluggish growth.

The change would accommodate eurozone governments which complain that the rules unfairly prevent them combating recession through higher spending.

EU finance ministers are scheduled to discuss the proposals next week.

A final decision on whether or not to adopt them is not expected until early next year.

Credibility problem

Making the budget rules more flexible would defuse a confrontation between the European Commission (EC) and some eurozone countries.

Earlier this year, EU finance ministers challenged an attempt by the EC to penalise eurozone heavyweights France and Germany for repeated breaches of the deficit ceiling.

Commentators said the dispute threatened to undermine confidence in the budget rules, set out in the Stability and Growth Pact.

"It is my firm belief that these proposals will provide for a stronger and more credible pact," Joaquin Almunia, the EU's economic and monetary affairs commissioner, said on Friday.

The Commission first signalled its intention to modify the budget rules in June this year.

The rules, designed to ensure that the 12 countries which use the euro maintain sound public finances, also prohibit governments from running up total debts worth more than 60% of GDP.

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