EU finance ministers to agree new rules on assessing national budgets

European Union finance ministers are expected to agree new rules for assessing national budgets when they meet in Brussels today.

But the European Commission has insisted that any changes will not weaken the Stability and Growth Pact that obliges euro-zone member-states to keep their budget deficits within strict limits.

The ministers are expected to approve a new way of assessing the gap between how fast economies can grow without driving up inflation and how they are actually performing. The Economic Affairs Commissioner, Mr Pedro Solbes, believes the change will help him to police national budgets more effectively and to make better recommendations in the annual Broad Economic Policy Guidelines.

Euro-zone finance ministers meeting in Brussels last night were expected to demand fresh assurances from France and Italy that their expansionary budget plans would not prevent them from fulfilling an obligation to bring budgets close to balance by 2004. They were also expected to question Portugal about reports that its budget deficit reached 3.9 per cent of GDP last year, making it the first country to breach the 3 per cent limit imposed by the Stability and Growth Pact.

The European Central Bank (ECB) yesterday renewed its warning to euro-zone governments to abide by their commitment to bring budgets close to balance by 2004. In a policy summary of its July monthly bulletin, the ECB said member-states should not attempt to use creative accounting to reach their budget goals.

"Any temptation to improve artificially the current budgetary position by means of accounting measures should be resisted," it said.

At today's meeting, the ministers will also discuss a Commission proposal to harmonise corporate tax rules throughout the EU. Member-states would remain free to set their own corporate tax rate but the same taxation rules would apply in all member-states.

The Minister for Finance, Mr McCreevy, and his British counterpart, Mr Gordon Brown, are expected to oppose the Commission's proposal, which the Government fears could represent a first step towards harmonisation of tax rates. Other governments are concerned that, after enlargement, new member-states will attempt to attract industry by setting exceptionally low corporate tax rates.

Yesterday's ECB report confirmed that the Bank was not considering an immediate rise in interest rates but made clear that its governing council remained confused about the inflationary picture. The ECB said it was difficult to assess the effect of the recent gains of the euro, while uncertainty continued about the strength of the economic upturn.

"The governing council concluded that, while risks to price stability over the medium term remain tilted to the upside, the most recent developments have sent mixed signals," it said.