The European Union admitted at the weekend that its economic recovery will be slower than expected, but insisted its belt-tightening stability pact will soon once again help accelerate growth.
EU finance chiefs gathered in Denmark, which currently holds the EU presidency, were forced to take stock of gloomy data, including a forecast that growth will not even reach 1 per cent this year.
The financial fallout of war clouds over Iraq also weighed heavily on the monthly ECOFIN meeting, in particular due to the upward pressure on oil prices, which put a further break on recovery.
"We have seen that even speculation is leading to higher oil prices," which are likely to slow any economic recovery further, as they did two years ago, German finance minister Mr Hans Eichel told reporters.
But the ECOFIN talks were above all dominated by argument over the Stability and Growth Pact, which imposes budgetary constraints on euro-zone states, notably the requirement to keep public deficits below 3 per cent of GDP.
Key EU countries including Italy and France have been seeking a relaxation of the rules, according to diplomats.
But Italian finance minister Mr Giulio Tremonti denied Rome wants the pact to be eased.
"To my personal point of view the pact is a fundamental asset and we must conserve it," he said.
Asked if the pact should be made more flexible, he said: "Absolutely not, it must be more rigid."
Pressure has grown for a relaxation of the pact recently, notably as key EU states like Italy, Germany and France flirt with violating the 3 per cent budget deficit ceiling.
Portugal posted a deficit of 4.1 per cent of GDP, earning it a formal warning from the European Commission.
If its deficit exceeds 3 per cent again it will face a hefty fine.
Germany's Mr Eichel also forecast that his country would not exceed the 3 per cent limit, even taking into account the massive clean-up operation under way after the recent devastating floods.
"I am assuming that we will not exceed the limit," he said, adding: "We remain firmly committed to our obligations under the Stability and Growth Pact."
Diplomats say that substantial discussion on the stability pact will not take place until at least next month - after a general election in Germany, the EU's heavyweight economy and currently one of its weakest.
"Any debate on the stability pact will be in October or November," said one source.
And EU officials also remained firm in their view that all EU member states can achieve their stated target of balanced budgets by 2004, when the 15-member bloc plans to take in up to 10 more - mostly-ex-communist - states. - (AFP)
