The euro-zone's Stability and Growth Pact has entered the deepest crisis in its six-year history after the Commission President, Mr Romano Prodi, described its as "stupid" and "rigid". Commission officials sought to play down Mr Prodi's remarks, made in an interview with Le Monde, but France rushed to back his call for more flexible rules on euro-zone budget deficits.
Agreed in Dublin in December 1996, the pact imposes a compulsory limit of 3 per cent of GDP on government deficits and envisages heavy fines for countries breaching the ceiling. Portugal's deficit exceeded 4 per cent last year, while Germany, France and Italy are close to breaching the 3 per cent limit this year.
Describing the pact as "imperfect", Mr Prodi said that the euro zone needed a more intelligent, flexible tool to impose budget discipline.
"I know very well that the stability pact is stupid, like all rigid decisions," he said.
Mr Prodi's spokesman, Mr Jonathan Faull, said in Brussels yesterday that the Commission President was trying to say was that hard economic times required a degree of flexibility in interpreting the rules of the pact.
"What would be stupid would be a rigid, dogmatic implementation of the pact which took no account of the economic realities of the situation. The President is not referring to any specific element, any specific part of the pact, he is referring to a situation, which fortunately we're not in, in which an over-rigid implementation of macroeconomic policy through the pact would endanger the growth prospects for the EU," Mr Faull said.
The French finance minister, Mr Francis Mer, seized on Mr Prodi's remarks during a Senate debate, saying that the pact must be more flexible.
"The President of the Commission. . . declares and recognises himself that the Stability and Growth Pact may need to show a bit more flexibility and a little less simplicity. I can only confirm what the President of the Commission said," Mr Mer said.
Mr Prodi's remarks will come as a profound embarrassment to the Economic Affairs Commissioner, Mr Pedro Solbes, who has sought to defend the pact against its critics. Under pressure from the biggest member-states, the Commission has already agreed to postpone the deadline for bringing budgets close to balance from 2004 to at least 2006.
The pact's credibility received a serious blow on Wednesday when Germany's finance minister said he would be unable to abide by its rules this year. "I do believe that we will not succeed in remaining below the 3 per cent deficit limit," he said.
In its Monthly Bulletin published yesterday, the European Central Bank defended the pact and criticised some countries for failing to take their budgetary responsibilities seriously.
