The European Commission has proposed major changes to Stability and Growth Pact to take into account the levels of economic growth and debt in different member states Under the 1997 Pact, EU member states must keep their budgets in or close to balance and must not allow budget deficits as a percentage of GDP to rise above 3pc. The Pact has been harshly criticised in recent months, with Commission president Romano Prodi branding it as "stupid"
The proposals announced today would allow EU States to run deficits if it is required to fund long term investments. The Commission said that budgetary policy should contribute to growth and employment and that a "small temporary deterioration in the underlying budget position" could be envisaged if it derives from the introduction of a large structural reform, such as tax reform or a long-term public investment programme Prodi said the changes would make "implementation of the pact more intelligent".
However, deficits will only be permitted where general government debt is "well below" the 60pc of GDP reference value and when public finances are on a "sustainable footing". //www.fxcentre.com