Proposed changes to the Stability and Growth Pact

1. The pact's requirement for euro-zone states to get their budgets "close to balance or in surplus" should be defined in underlying structural, rather than nominal, terms. This would reflect the impact of the economic cycle on budgetary positions.

2. States running deficits should improve their budgets by 0.5 per cent of gross domestic product (GDP) each year until they get back in the black, or even more if "growth conditions are favourable".

States with a deficit higher than the pact's limit of 3 per cent of GDP or debt running above 60 per cent of GDP should improve at a faster rate.

3. A "pro-cyclical loosening of the budget in good times should be viewed as a violation of budgetary requirements at EU level".

This would require states to bring their budget into balance during times of economic boom.

4. "Budgetary policies should contribute to growth and employment."

This measure would allow states to suffer a small temporary deterioration in their underlying budgetary position if it was linked to the introduction of a "large structural reform".

This could include a major investment programme such as the National Development Plan.

The Commission must, however, verify that there is a "clear and realistic deadline" for returning to a balanced budget.

5. The Commission wants states with debt well above the limit of 60 per cent of GDP to be made liable to the "excessive deficit procedure" unless they cut the debt at a "satisfactory pace".

The procedure has already been invoked by the Commission against Germany and Portugal.