Hernieuwde spanning tussen Brussel en Berlijn over Stabiliteitspact (en)

EUOBSERVER / BRUSSELS - The row over the euro rules refuses to go away.

Brussels today (18 February) told Berlin that it was at risk of breaking the rules because its growth projections were too optimistic.

Germany says it will dip under the three percent deficit ceiling imposed by the Stability and Growth Pact - the rules underpinning the euro - in 2005.

But a report published today by economics and monetary affairs commissioner Pedro Solbes cast serious doubt on Germany's claims, saying, "according to the Commission, two risks surround the attainment of this objective, namely the possibility of lower growth in 2005 and that of expenditure overruns related to pensions, the health sector and unemployment related payments".

The problem is that whilst Berlin says the German economy will grow by 2.25 percent, Brussels thinks 1.5 percent is a more likely figure - a wide discrepancy in economic terms.

Mr Solbes also said it was "disappointing" that Germany no longer includes in its economic self-assessment the goal of reaching a balanced budget in the medium term.

But he welcomed Germany's continued commitment to reducing its deficit, saying, "we think this is very positive". He added that he would not be asking Berlin to take any more additional measures to meet the rules.

Simmering row

If the Commission is correct and Germany remains over the three percent deficit limit in 2005, the euro zone's biggest economy will have breached the ceiling for four consecutive years.

This situation should lead to strict disciplinary action being taken against Germany by the Commission, potentially leading to fines of up to 10 billion euro.

But Germany - backed by France - persuaded enough of their fellow finance ministers to suspend this disciplinary procedure in November 2003. This action infuriated some member states - especially Austria and the Netherlands - and also angered the Commission to such an extent that it decided to take the ministers to court.

The Commission is furious with Germany for what it sees as destroying the rules that it believes are vital for the stablity and credibility of the single currency.

Conversely, Germany believes that Brussels is interpreting the rules too strictly and that when the country is struggling economically, it should not be striving to reduce its deficit. However, sources close to the German government said that there was unlikely to be an offical reaction saying, "look, everyone knows what our position on the Stability Pact is".

Reforming the pact?

Mr Solbes also announced today the results of a preliminary debate in the Commission on potential reform of the euro rules.

Although the Commission is at the "very beginning of the process", there was general agreement that there was no need to modify the main part of the rule, which is the deficit and debt ceiling. These limits remain "valid", according to the Commissioner.

This chimes with a recent letter sent to the Commission by six member states - the Netherlands, Estonia, Poland, Italy, Spain and Portugal - calling for the euro rules to be left alone. Germany and France are thought to want a more relaxed interpretation of the rules but agree that any discussion about reform should be delayed until relations have improved.

No concrete proposals on reforming the rules are expected in the near future, confirmed Mr Solbes.