EU to announce changes in Stability and Growth Pact today

The European Commission is today set to unveil new proposals aimed at modifying the controversial Stability and Growth Pact, the rules which underpin the euro.

At the Commission's first meeting following the summer recess, Joaquín Almunia, the Economic and Monetary Affairs Commissioner, is expected to outline new proposals that would redefine the circumstances where excessive deficits are allowed.

Sources close to the European Commission told The Times that under the proposed new measures, countries with long periods of slow growth would be allowed to break the budget ceiling. In a bid to avoid budget disputes between member states, the proposals include changes to the time period countries are given to reduce their deficits depending on the individual economic factors of each country.

At present governments which breach the rigid rules of the pact have one year to return within the three per cent budget deficit ceiling.

Malta is at present not part of the eurozone but is aiming to join as soon as the national financial situation is stabilised.

According to an accord between Malta and the EU, the island has to reduce its deficit and come in line with the Stability Pact's criteria by the end of 2006. That effectively means that Malta's first chance to join the euro will not be before 2008. According to the present rules a member state will be eligible to join the euro-zone two years after adhering to the criteria.

Addressing the European Parliament's committee for economic and monetary affairs on Tuesday, the president-in-office of the Ecofin council, Gerrit Zalm, confirmed the wish of the Dutch presidency to garner a consensus on the reform of the Stability and Growth Pact.

He said the Commission's proposals should serve as a good basis for discussion at the informal meeting of Finance Ministers at Scheveningen, in The Netherlands at the end of next week. Malta will be represented at this meeting by Parliamentary Secretary Tonio Fenech on behalf of the Prime Minister.

Several MEPs have already expressed concern that the reform of the pact might amount to "rewarding some member states for their bad behaviour" or to "loosening up" of the pact's rules. The largest group in the European Parliament, the European People's Party, has already declared it will oppose the changes.

Mr Zalm, the Dutch Finance Minister, sought to allay these fears, saying there would be no weakening of the pact. In fact, the pact would become tougher during economic upswings as countries would be required to build up surpluses.

He added that, on the other hand, reform would also allow more flexibility with regard to deficits for countries that have had fewer problems with debt and aging populations. He stressed that the Union "needs a system within the treaty which is credible, rule-based and applied".