Row over 'stupid' EU budget rules

Romano Prodi told Le Monde newspaper that the EU needed rules to keep individual countries from running up huge deficits and undermining investor confidence in the euro.

But he added that current rules were "rigid".

Mr Prodi's remarks, which have been played down by the commission, come at a time when Europe's budgets are under almost unbearable strain.

The German government admitted for the first time on Wednesday that it would probably breach EU budget guidelines this year, and France, Italy and Portugal are believed to be in a similar position.

Politicians around Europe have for years called for amendments to the so-called "stability and growth pact" budget rules, but Brussels has resisted change.

Plan backfires

The pact was agreed by governments in 1997 - ironically, at the insistence of Germany - as a means of ensuring that investors would have faith in the European economy ahead of the launch of the euro.

It aimed to prove that EU member states, although allowed much leeway in economic policy, were abiding by the same fiscal principles.

The pact imposes a compulsory limit on public deficits of 3% of annual economic output, and lays out a system of warnings and punishments for offenders.

This year, as a number of countries have come close to breaching the 3% ceiling, some governments have argued that they need the freedom to boost spending as the global economy slows.

Nothing's perfect

Mr Prodi's remarks to Le Monde were an attempt to defend the principles behind the pact.

"I know very well that the stability pact is stupid, like all rigid decisions. If we want to adjust these, unanimity is needed and it doesn't work," he said.

"The stability pact is imperfect, it's true, because there is a need for a more intelligent tool and more flexibility."

But he flatly denied that any increase in flexibility could lead to a complete release of pact shackles.

"The idea of having divergent economic policies is totally crazy," he said.