Germany bids to row back EU budget powers

Germany plans a last-minute bid next week to roll back new powers to police budget deficits given to the executive European Commission in a planned European Union constitution, EU sources said yesterday.

They said Berlin wanted to amend a clause proposed by the Convention which drafted the charter that would make it harder for member-states to block or amend Commission recommendations to a country to cut an excessive budget deficit.

The new battle, days before EU leaders are due to approve the final constitutional text at a summit next week, comes as the credibility of the EU's budget rules has crumbled due to repeated breaches by France and Germany.

Diplomatic sources said Berlin was not alone in trying to prevent the EU executive being given a stronger hand in enforcing budget discipline and coordinating economic policy.

The warning came as the French prime minister Mr Jean-Pierre Raffarin called for the exclusion of public expenditure on research from calculations on respect for the deficit control rules.

In an interview with Le Monde newspaper, Mr Raffarin was asked what kind of issues should be taken into account in a rethink of the way the EU pact is applied.

"It must change in a way that takes greater account of economic growth," he said. "Europe also need to be able to define types of spending that are regarded as strategic and which would not be taken into account under the pact," he said.

France has also said defence spending should be excluded. The European Commission is working on adjustments in the way the stability pact is applied and sources say it is expected to announce its proposals within weeks.

With Europe's biggest economies clamouring for more emphasis on promoting growth, one suggestion is to offer temporary budget leeway to countries that have pretty much wiped out deficits and whose debt outlook is deemed sustainable.

But the Commission also wants to be stricter in good times and make it harder for countries to get away with budget slippages.

"There is massive resistance among finance ministers to topping up [the Commission's powers\] in the deficit procedure," one EU diplomat said.

A previous attempt by EU finance ministers to overturn the Convention text was rejected by foreign ministers last November.

- (Reuters)