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Last Updated: Tuesday, 8 March, 2005, 13:21 GMT
EU spending pact row rumbles on
French president Jacques Chirac (L) and German chancellor Gerhard Schroeder
Germany and France called for change after breaking pact rules
European Union (EU) finance ministers have failed to agree on how much they should change the EU stability pact, despite marathon talks in Brussels.

France and Germany have called for the pact to be modified after repeatedly breaking borrowing limits.

The two want some spending, such as the funding of long-term economic reform, to be excluded from the pact.

Smaller countries that have kept to the rules have opposed the move. Emergency talks will now take place on 20 March.

In some issues, we are going backwards. If we do not get an agreement, the consequences would not be good for anyone
Joaquim Almunia, European Monetary Affairs Commissioner

Rift worries

The dispute has raised concerns of a rift when EU leaders meet for talks later in March.

"I am not very satisfied," European Monetary Affairs Commissioner Joaquin Almunia said after the meeting.

"In some issues, we are going backwards. If we do not get an agreement, the consequences would not be good for anyone."

Some commentators claim the row has eroded the pact's credibility.

The Stability and Growth Pact was designed to safeguard the euro after its launch in 1999 by guaranteeing that governments would not overspend and plunge their country into deficit.

However, Germany - one of the main instigators of the pact - broke the rules for the third year in a row last year, as did France.

The current talks in Brussels were triggered by the pair's efforts to avoid sanctions for breaking the rules.

'Sticking points'

But after 10 hours of negotiations chaired by the EU President, Luxembourg's Prime Minister Jean-Claude Juncker, the 12 eurozone finance ministers failed to resolve their differences.

"We are at the limit now. To go any further would be to put in question not only the stability pact itself but the stability of the euro zone and the credibility of the euro," Belgian Finance Minister Didier Reynders said.

Luxembourg's Mr Juncker added: "It's still difficult, but we are progressing toward an agreement.

"The biggest sticking point is drawing up the list of relevant factors to take into account when evaluating a deficit over 3% of GDP."

In a bid to end the deadlock, Mr Juncker had proposed making the rules on breaking deficit limits less stringent.

Germany was unhappy with the plan, because it did not include a clause which exempted German reunification costs when measuring compliance with the EU deficit rules, according to officials.

But Minister of Finance Hans Eichel said he was "quite optimistic" of reaching an agreement in the future.

Still, Austria - one of the smaller countries that kept to EU deficit limits - has vowed to resist letting Berlin off over the 1990 reunification costs.

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