The President of the European Commission, Mr Romano Prodi, is standing by his description of the Stability and Growth Pact as stupid.But the remarks continued to cause controversy yesterday as the Economic Affairs Commissioner, Mr Pedro Solbes, moved to defend the pact against criticism.
The Commission President's spokesman, Mr Jonathan Faull, said in Brussels yesterday that Mr Prodi did not regret a single word of his remarks about the pact.
"He stands completely by his line which is that the pact should be applied intelligently, that it should take account of the economic realities of our economies and that rigidities are stupid," he said.
Bavaria's prime minister, Mr Edmund Stoiber, who was the conservative candidate for chancellor in last month's German elections, said that Mr Prodi should resign.
"What Mr Prodi said yesterday clearly disqualifies him as President of the European Commission. He's wasted any remaining trust in the European Commission in Europe," he said.
The euro fell below $0.97 on Thursday following Mr Prodi's remarks but it regained ground yesterday due to dollar weakness. Mr Faull insisted that currency movements had many causes and that Thursday's drop could not be blamed on Mr Prodi.
Mr Solbes, who is responsible for enforcing the stability pact, defended its rules yesterday and insisted that it was applied flexibly.
"I take it as the most crucial part of my duty as Commissioner of Economic Affairs to work as the guardian of the treaty and the EMU framework - which governs our single currency, the euro.
"With various initiatives over the last three years, the Commission has proved that the Stability and Growth Pact is flexible enough to accommodate policies that make economic sense. Of course, no flexibility can accommodate bad economic policies," he said.
Austria's central bank governor, Mr Klaus Liebscher, who is a member of the European Central Bank's governing council, also defended the pact and appeared to criticise Mr Prodi.
"I hope that Prodi's comments were misunderstood. There has to be a reasonable budget policy that limits the countries in their spending," he said.
Among other things, the Pact requires governments to keep their budget deficits below 3 per cent of GDP while moving towards a balanced budget.
The initial deadline of 2002 was extended to 2004 and is now to be pushed back again to 2006.
France, Germany and Italy are in danger of breaching the 3 per cent ceiling for budget deficits and Portugal appears already to have done so.
France has been to the forefront in calling for a more flexible application of the pact.
But many European politicians, especially those representing the smaller countries, are reluctant to ease the rules in case such a move would damage the euro's credibility.
