EU budget pact crisis deepens

BRUSSELS, Nov 27 (AFP) – A crisis triggered by the suspension of strict rules underpinning the euro threatened to widen Thursday, as Brussels again warned of legal action after some leaders say the rules must be rewritten.

The decision by EU finance ministers to let EU heavyweights France and Germany off the hook is likely to cloud negotiations on the bloc’s first-ever constitution which open Friday in Italy.

Long-simmering tensions between the EU’s central institutions and its member states – and between large and small countries – are being brought to the boil by the row over the Stability and Growth Pact, the budget rule book for the 12-national eurozone.

Some leaders sought to play down the sense of crisis. French Finance Minister Francis Mer – who secured the budget pact let-off with his German counterpart Tuesday – insisted reports of the pact’s demise were premature.

“The spirit of the pact was respected and I do not agree with those who say that it is dead,” Mer said at a conference on the first day of a three-day visit to Japan.

But the credibility of that affirmation was called into question by his own remarks barely 24 hours earlier — when he suggested that the 1997 pact should be revised, albeit not until 2005 to let tempers cool over the affair.

And the Brussels commission, the EU’s executive arm, meanwhile reiterated its threat to take EU governments to court over the deal by the EU’s “big two,” whose sharply renewed coziness of late has fueled fears of their domination of the bloc as it prepares to expand from 15 to 25 members next year.

EU monetary affairs commissioner Pedro Solbes – Mr. Euro – made clear his feelings in an interview with the Spanish financial daily Expansion, saying Brussels could take legal action before the European Court of Justice.

“It’s an issue we must carefully analyse. My opinion is that there should be elements to take the affair before the (court’s) tribunal. The (European) Commission’s judicial service is studying this question,” he said.

This week’s disputed deal suspended “for the time being” disciplinary measures against Paris and Berlin for failing to get their public deficits under 3.0 percent of GDP, as required by the 1997 pact.

The stitch-up, agreed in the early hours of Tuesday after marathon talks, sparked fury from Solbes and a blunt warning from the European Central Bank that it carried “serious dangers.”

On Thursday that assessment was echoed by the head of the German Bundesbank President, Ernst Welteke.

His comments have all the more force since he heads an institution that long held sway over Germany’s cherished Deutschmark, Europe’s dominant currency until the introduction of euro notes and coins only two years ago.

“At best, it’s seriously damaged. One of the most important institutional pillars of monetary union is tottering,” he said in an interview with the daily Frankfurter Allgemeine Zeitung.

Analysts meanwhile pointed out that, with the stability pact’s credibility in shreds, the world’s second biggest currency risks being abandoned with no visible framework of rules underpinning it.

“The Stability and Growth pact, long on life support, was finally buried as a functioning policy instrument. Now the challenge for the eurozone is to find an alternative foundation for budgetary discipline,” said Europe’s leading financial daily the London-based Financial Times.

And the daily made clear the link with the increasingly heated battle over the EU’s future constitution.

“The same issue underlies both: a growing fear among smaller countries that big nations, notably France and Germany, are riding roughshod over them,” it said in an editorial headline “Europe courts a double disaster.”

Subject: French news