Euro-zone talks end on a sour note

When the 13 euro-zone finance ministers started their monthly meeting in Brussels' Justus Lipsius Building on Monday night, they knew they were facing a fraught discussion.

Few predicted, however, that talks on how to deal with France and Germany's breach of the Stability and Growth Pact would continue almost until dawn or that they would end so rancorously.

Joining the ministers, as usual, were the Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, and the president of the European Central Bank (ECB), Mr Jean-Claude Trichet.

According to the Minister for Finance, Mr McCreevy, the first part of the discussion was relatively straightforward, with everyone agreeing that Germany and France should be given until the end of 2005 to bring their budget deficits below the pact's limit of 3 per cent of GDP.

"What this got down to in the end was an issue between substance and procedure. The Commission agreed that bringing into line both France and Germany could take an extra year - that it could be done by the end of 2005. The methodology of what per cent each year had to be agreed but the substance was agreed. The debate then was around the procedure," he said.

The Commission wanted to issue a recommendation to the two countries under Article 104 (9) of the EU Treaty. This would have made binding any commitments made by France and Germany and would have allowed a breach of those commitments to trigger financial sanctions.

Mr Trichet and the finance ministers of Austria, Finland, the Netherlands and Spain spoke in favour of the Commission's proposal, arguing that the EU's budget rules must be applied even-handedly to all member-states, regardless of their size. Other ministers said that, if France and Germany were co-operating with the Commission's recommendation, there was no need to move to the tougher procedure.

"Everybody had their say. It was a very, very difficult meeting, handled in my view exceptionally well by Giulio Tremonti, the Italian finance minister," Mr McCreevy said.

Shortly before 4 a.m. yesterday, it was clear that the Commission lacked sufficient support to push through its proposal. When the ministers met again at 10 a.m., the Commission asked for a formal vote on its recommendation to move to the tougher procedure. The four countries that backed Mr Solbes earlier were joined by Belgium and Greece but the proposal failed to win a qualified majority under EU rules.

When they voted on the proposal to put the excessive deficit procedure against both countries into abeyance, all but Austria, Finland, the Netherlands and Spain voted in favour. Mr Solbes issued a declaration condemning the decision, which he described as inconsistent with the "spirit and the rules" of the pact.