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Last Updated: Monday, 14 June, 2004, 11:25 GMT 12:25 UK
Fresh call for euro pact reform
EU trade commissioner Pascal Lamy
Mr Lamy wants more flexible and more 'intelligent' budget rules
European trade commissioner Pascal Lamy has called for an overhaul of the budget rules underpinning the euro.

Mr Lamy said in a press interview that the Stability and Growth Pact needed to be made more flexible.

"The pact is too simply constructed to provide answers to difficult questions," he told the Berliner Zeitung, a German daily.

He called on the European Commission to put forward draft amendments aimed at making the pact "more intelligent".

However, Mr Lamy stressed that the main elements of the pact, which obliges euro zone members to keep annual budget deficits below 3% of gross domestic product, should not change.

"We have a single currency, and therefore we should have discipline in budgetary matters," he said.

Constitutional wrangling

Separately, Germany is leading efforts to dilute measures set out in the draft European constitution which would boost the European Commission's powers to enforce the pact.

Germany's proposed amendments are likely to be discussed later on Monday by European Union foreign ministers.

On Thursday, European governments gather in Brussels to agree a final draft of the constitution, which sets the legal framework for the EU as it absorbs the 10 eastern and central European countries which joined last month.

Critics have previously argued that the stability pact hampers growth by preventing euro zone governments from boosting public spending to stimulate their economies during downturns.

They have called for the strict deficit limit to be temporarily relaxed when an economy slows down.

Big spenders

Several of the 12 euro zone nations have already breached the deficit ceiling, with its two biggest economies - France and Germany - now on track to do so for the third year running.

France and Germany faced possible penalties for failing to control their spending last year, but other EU countries voted to let them off the hook, denting the pact's credibility.

The European Commission has since appealed to the European Court of Justice to let it re-impose sanctions against Paris and Berlin.

When the pact was first drawn up in 1998, the deficit limits ironically were championed by Germany, which was worried that smaller euro zone nations could not be trusted to maintain fiscal discipline.

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10 May 04  |  Europe
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07 Apr 04  |  Business
EU takes budget battle to court
13 Jan 04  |  Business

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