EU finance ministers are pressing ahead with consultations on the European stability and growth pact in Brussels on Tuesday. The fiscal framework for the European single currency is in great need of reform.
Some European countries need to get more into their piggy banks
The European Union's finance ministers agreed Tuesday to pursue a formal warning process against Greece after revelations that the country's budget deficit far exceeded an EU limit since 1997.
Greece has the highest deficit in percentage terms of all euro-zone countries. It is well over the three percent limit set down in the Stability and Growth Pact, the fiscal rules underpinning the euro. Greece is closer than any other country to having the European Commission impose financial penalties as a result.
In Brussels, finance ministers from all 25 European Union member states continued talks launched late Monday on how best to shake up the stability pact. The difficulties certain countries have in sticking to it has prompted calls for its reform.
Germany and France favor a loosening of the euro-zone rules for national budgets, whereas Austria and the Netherlands are opposed to greater flexibility.
German call for more leeway
Negotiations among euro-zone finance ministers have now entered a critical phase. Luxembourg's Prime Minister Jean Claude Juncker wants to strike a deal on reforming the pact before an EU summit at the end of March. It is meant to tackle long-term reforms for the EU's weak economy.
German Finance Minister Hans Eichel wants the pact reconsidered
Before the late night meeting started Monday, Germany's finance minister Hans Eichel (photo) defended his country's proposals for more leeway for national governments in times of economic stagnation or social reform.
His Austrian counterpart Karl Heinz Grasser responded that there was nothing wrong with the stability pact. The problem was more that certain countries had difficulty in abiding by it.
Making Europe more growth-oriented
German chancellor Gerhard Schröder earlier this week called for greater flexibility in the budget rules that set a strict limit on a country's public deficit.
"The crux of the matter is to ensure that Europe become more growth-orientated," said Schröder.
A euro sculpture in front of the European Central Bank in Frankfurt, Germany
The German chancellor wants certain items to be excluded from the deficit calculations -- a proposal which has drawn criticism from Germany's central bank, Bundesbank.
It argued that this step would be tantamount to lifting the three percent ceiling and excessive deficits would become the rule, not the exception.
Leaders shouldn't interfere
Dutch Finance Minister Gerrit Zalm criticized Schröder for his remarks, saying they could make Tuesday's talks more difficult.
"It's always hard to reach a compromise when government leaders interfere with the business of finance ministers," Zalm told reporters.
But Schröder insisted that the deficit limit is inadequate to deal with the complex realities of fiscal policy. He said Germany would not agree to a reform that did not limit the powers of the European Commission to intervene.
Smaller EU countries are adamant that budgetary rigor is essential to the euro's credibility. More heated exchanges can be expected in talks between now and March.