As euro-zone finance ministers prepare to discuss the future of the EU's budget rules in Brussels this evening, they agree that the Stability and Growth Pact is ripe for reform but remain deeply divided over how to change it.
The ministers are unlikely to reach a conclusion this evening but they hope to narrow the options under discussion with a view to agreeing changes by the time EU leaders meet in Brussels in March.
The Irish Minister for Finance, Mr Cowen, and his officials are said to have a "relaxed" attitude to future reforms at this stage.
The pact, which was agreed in Dublin in 1996, is designed to ensure that euro-zone governments do not endanger the currency's stability by running excessive budget deficits or allowing their public debt to rise too high.
Euro-zone countries are supposed to keep public debt below 60 per cent of GDP and to keep their budgets balanced or in surplus. If a budget deficit exceeds 3 per cent of GDP, the offending country faces an "excessive deficit procedure" - a series of measures starting with recommendations for corrective action and leading, potentially, to financial sanctions.
The 3 per cent deficit limit has been more honoured in the breach than in the observance, with the euro-zone's three biggest economies - Germany, France and Italy - among the worst offenders. When Portugal transgressed, the EU sent its monetary policy tanks rolling into Lisbon but when France and Germany threatened to break the rules for the third year in a row, finance ministers suspended the excessive deficit procedure.
This decision in November 2003 prompted a stand-off between the finance ministers and the European Commission, which took the ministers to court. The debacle over France and Germany also persuaded all parties involved that a reform of the budget rules was unavoidable.
A group of countries led by Germany wants ministers to take account of the reasons underlying a breach of the 3 per cent limit and to refrain from triggering the excessive deficit procedure if the breach seems justified.
Other ministers insist that the excessive deficit procedure must be triggered by all breaches of the 3 per cent limit.
The ministers will also consider loosening the definition of "exceptional circumstances" that can justify a breach of the rules.
Luxembourg's EU Presidency hopes to achieve unanimous approval for all elements of a reform package but few insiders expect a deal before EU leaders meet in the middle of March.
