One of Europe's top officials has appeared to side with France and Germany in the war of words over the implementation of budget deficit rules. Pedro Solbes, the EU Commissioner for Economic and Monetary Affairs, told an Italian newspaper that Germany and France will not automatically be fined next year if their budget deficits remain above 3pc of GDP. If the deficits do exceed the 3pc next year, it will mark the third year in a row that the two largest countries in the euro zone will have violated the terms of the Stability and Growth Pact.
The Pact requires countries to bring deficits into - or close to - balance within a few years and threatens massive fines for noncompliance. Solbes comments that he will apply budget rules "with maximum flexibility" are sure to anger many smaller European countries, such as Ireland, who have kept their deficits in check despite slower economic growth internationally and domestically. "We have gone through hell and high water to agree with the stability pact," finance minister Charlie McCreevy said last week in an interview. //www.fxcentre.com