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Last Updated: Thursday, 24 June, 2004, 12:23 GMT 13:23 UK
Euro pact rules to be reviewed
Euro banknotes
The eurozone's big economies are freely flouting the pact
The European Commission is planning to alter the rules that govern budget deficits in eurozone member states.

Announcing a review of the Stability and Growth Pact, economic affairs commissioner Joaquin Almunia said the Commission had been "too stringent".

The pact is meant to keep the deficits of eurozone states below 3% of GDP, but many - most notably France and Germany - have breached it.

Mr Almunia said six of the 10 new EU countries also had excessive deficits.

The six are Cyprus, the Czech Republic, Hungary, Malta, Poland and Slovakia.

All new entrants are committed to joining the eurozone at some point, and should bring their deficits in line by 2008.

Rethink

Mr Almunia said it was "probably necessary" to clarify the definitions of the pact's rulebook.

European economic and monetary affairs commissioner Joaquin Almunia
Mr Almunia is calling for more flexibility
"The experience of the last five years has shown that in certain cases at least, the rules have perhaps been too stringent and have reduced our room for manoeuvre," he said.

The pact has been controversial, not least because some critics say its focus on fighting inflation means it is ill-equipped to deal with slow growth.

The Commission now believes it needs to "combine discipline with growth considerations" and focus more on the debt, sustainability and the specific state of each country's finances, it said in a report on Thursday.

It also hinted at balancing bigger budget deficits in hard times with running a surplus during years of growth.

Several of the biggest countries, particularly France and Germany, have repeatedly flouted the budget rule in recent years in an attempt to deal with slow growth and high unemployment.

In theory, the rules call for sanctions against states in breach of the 3% ceiling.

Greece is now in line for possible action, having breached the boundary in 2003 and being likely to repeat the transgression.

Smaller countries including the Netherlands have insisted that all 12 eurozone members should stay in line.


WATCH AND LISTEN
The BBC's John Moylan
"Formal commission proposals are expected later this year"



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