The European Commission has adopted a plan to alter the rules intended to control budget deficits in order to improve the way they work and their credibility.
Outgoing commission president Romano Prodi said the Stability and Growth Pact, which ties EU economies together with budget rules and limits, was vital for the stability of the euro but had to be made more intelligent.
He said the commission had a duty to reach greater coherence and coordination between the twins targets of price stability and developing the European economy's growth potential.
The commission's proposals are intended to overcome a crisis caused by persistent breaches of the 3% of gross domestic product deficit limits by France and Germany and a refusal by EU finance ministers to press penalty procedures against them.
The new interpretation would stress the importance of controlling debt, as well as deficits, and would increase pressure on countries to switch from deficit to surplus in times of economic growth.
The commission said it was proposing to take greater account of what it called the viability of public accounts and of the diversity of economic conditions in the euro zone.
The objective was to strengthen the economic basis of the pact while improving the way it was applied and its credibility, the commission continued.
The plan introduced increased economic logic into the way the pact was applied while also strengthening effective application, Economic Affairs Commissioner Joaquin Almunia said. He described the proposed changes as an evolution rather than a reform.
A key point of the plan is to increase the focus on countries' medium and long-term debt. Increased attention would be also given to the situation of each country in defining the target of a balanced budget.
And in applying the so-called excessive deficit procedure against countries heading for a breach of overspending limits, the commission would take greater account of the effect of exceptionally weak growth.
Under the way the pact works now, a country may invoke exceptional circumstances causing excessive deficits only in times of recession. The plan is to be put before euro zone finance ministers in The Hague on September 10.
In June, the commission began to review the way the pact works because of a crisis sparked by a finance ministers' decision in November that effectively suspended sanctions against France and Germany for running public deficits persistently in excess of the 3% ceiling.
