EU finance ministers meet in Brussels today amid renewed speculation about the future of the Stability and Growth Pact and increasing doubts about an Italian plan to boost economic growth in Europe.
French President Mr Jacques Chirac revived the debate on the euro-zone's budget rules yesterday when he called for them to be relaxed temporarily.
Mr Chirac said, during a Bastille Day interview, his government would not reverse its plans to cut taxes and would not increase social security payments to reduce a budget deficit that is already in breach of euro-zone rules.
"This is not about modifying the stability pact. It's a case of getting the representatives of euro-zone nations to examine together the terms of a temporary softening," he said.
Arriving at the Brussels meeting of euro-zone finance ministers last night, Economic Affairs Commissioner Mr Pedro Solbes reacted cautiously to Mr Chirac's remarks. "I am always ready to discuss the situation but I think my position is that the pact does not need to be modified," Mr Solbes said.
EU finance ministers failed to agree on a reform of the pact earlier this year but the EU's biggest economies, France and Germany, are already in breach of its rules.
German finance minister Mr Hans Eichel insisted yesterday that his government remains committed to the Stability and Growth Pact and he will tell the ministers today that tax cuts planned by Berlin will not lead to a further breach of the rules.
Meanwhile, Mr Hermann Remsperger, chief economist at Germany's Bundesbank, yesterday urged Chancellor Gerhard Schröder to restrain from making public comments on monetary policy.
"I believe everyone is responsible for their own policy areas. The financial markets are especially sensitive [to public comments from leading politicians\]," Mr Remsperger said.
Mr Remsperger's comments come at a time of increasingly strained relations between politicians and central bankers.
Mr Schröder last week indirectly urged the European Central Bank (ECB) to consider intervening in the currency markets in an effort to help European exporters by weakening the euro. He has also repeatedly called on the ECB to lower interest rates to try to stimulate growth.
The stability pact is not on today's agenda but the ministers will discuss an Italian proposal to boost economic growth by investing in major infrastructure projects such as the Trans-European Network of high-speed railways. The Italian plan foresees the European Investment Bank providing €11 billion and private sector finance providing the rest.
Today's meeting follows an announcement yesterday by the European Commission that it has lowered its economic growth forecast for the euro zone this year to just 0.7 per cent.
At the start of this year, the Commission was predicting growth of 1.8 per cent for 2003.
Mr Solbes's spokesman said the commissioner remained confident that growth would pick up in the second half of 2003 and hoped that national governments would maintain fiscal discipline despite the sluggish economy.
"All indications that we have from governments is that all are committed to implementation of structural reforms, the acceleration of structural reforms, and all are committed to fiscal consolidation, despite the difficult economic situation we have," he said.
The ministers are expected to approve the appointment of Mr Jean-Claude Trichet, Banque de France governor, as successor to Mr Wim Duisenberg, ECB president. He is expected to take office in November.
