Germany today called for a radical overhaul of the EU's budget rules, sparking controversy as European finance ministers debated reforms to the euro's tattered fiscal framework.
As the ministers convened for two days of talks on the enfeebled Stability and Growth Pact, German Chancellor Gerhard Schroeder said nothing less than a major loosening of the euro zone rules was required.
In an article in the Financial Times, Schroeder argued in favour of substantial exemptions to the pact and called for the European Commission's oversight of EU nations' economic policies to be sharply curtailed.
'The stability pact will work better if intervention by European institutions in the budgetary sovereignty of national parliaments is only permitted under very limited conditions,' he wrote.
Luxembourg Prime Minister Jean-Claude Juncker, the EU's current chairman, wants to strike a deal on reforming the pact by a March 22-23 EU summit that is meant to tackle long-term reforms to the 25-nation bloc's weak economy.
There is broad consensus on the need to reform a pact that has been left weakened by the refusal of EU nations to bring France and Germany to heel for allowing their public deficits to surpass a ceiling of 3% of GDP.
Backed by Italy, the heavyweight pair want the rules relaxed to allow for greater budgetary flexibility as they struggle to emerge from a protracted economic downturn.
The EU Commission agrees that the stability pact should be rewritten, but wants EU nations to be mandated to mend their finances in good economic times, rather than waiting for a downturn. The EU executive also wants to allow more leeway for countries that have healthy levels of debt.
