EU finance ministers discuss reform of stability pact

Euro zone finance ministers met in Brussels last night to discuss a reform of the Stability and Growth Pact, against the background of a soaring euro and amid new revelations about Greece's bogus budgetary statistics, writes Denis Staunton, European Correspondent.

The Greek finance minister, Mr George Alogoskoufis, admitted yesterday that Greece had joined the euro in 2001 on the basis of false figures that showed its budget deficit to be lower than it really was.

Eurostat, the EU's statistical agency, has established that Greece's budget deficit was above 3 per cent of GDP in 1999 and in each subsequent year up to 2004.

"It has been proven that the [ budget] deficit had not fallen below 3.0 per cent in every year since 1999 We'll have a very crucial meeting today, during which data on past deficits will be clarified," Mr Alogoskoufis said.

The Greek financial daily, Naftemboriki, reported yesterday that, contrary to what Greece's former socialist government told the EU, the country's budget deficit was 6.44 per cent in 1997, 4.13 per cent in 1998 and 3.38 per cent in 1999.

The strength of the euro, which has remained close to $1.30 for the past week, was not on the formal agenda for last night's meeting but a European Commission spokesman said that it was likely to be discussed.

"This issue might come up during the discussion on the economic situation but there is no specific situation envisaged by the presidency," he said.

The President of the European Central Bank (ECB), Mr Jean-Claude Trichet, has described the euro's rise against the dollar as "brutal" and Mr Jose Manuel Gonzalez-Paramo, a member of the ECB's executive board, yesterday repeated the central bankers' concerns.

"Excessive volatility of the euro's exchange rate, to the extent that it does not favour the economy, is absolutely not desirable.

"Brusque and sudden swings in the exchange rate are not welcome for the ECB," he said.

Mr Gonzalez-Paramo also kept the door open on rates, which havebeen at a record low of 2 percent for 17 months in a row now to foster the gradual recovery.

He called recent data "mixed."

"It appears that the recovery that was under way in the European Union has temporarily lost momentum," Mr Gonzalez-Paramo said.

"With respect to the options [ on rates], by definition the ECB has them. Its priority goal is to guarantee price stability and as a function of that, all the options are always open," he said when asked if third quarter growth data means rate cuts are on the table.