The EU Economic and Monetary Affairs Commissioner, Mr Joaquin Almunia, has predicted that the EU will reform the Stability and Growth Pact by the end of March but insisted that its limit on government deficits would remain unchanged.
Mr Almunia told the Italian daily Corriere della Sera that the budget deficit limit of 3 per cent of GDP remained inviolable.
"So it is not possible to have a reform of the pact that breaks this limit," he said.
The Commission has proposed that countries should be given more leeway to run deficits during economic downturns if they exercised restraint during years of robust economic growth.
Mr Almunia said yesterday that it was important to consider both the nature of public spending and its effect on each country's long-term economic growth prospects.
Luxembourg, which assumed the EU presidency last week, has made the reform of the Stability and Growth Pact a priority of its six months in office. The prime minister, Mr Jean-Claude Juncker, who also chairs the Eurogroup of euro-zone finance ministers, has said he wants EU leaders to approve the reform when they meet in Brussels in March.
Mr Almunia told the French daily Le Figaro yesterday that the Ecofin group of EU finance ministers would work out many of the details of the reform later this month.
"The next Ecofin which is being held on January 18th, will be decisive. But I'm optimistic about the likelihood of reaching an agreement before the European Council in mid-March," he said.
The reform proposals were prompted by the finance ministers' decision to suspend the Stability and Growth Pact's disciplinary measures against France and Germany, after the euro zone's two biggest economies repeatedly breached the 3 per cent deficit limit.
Some countries, including Germany, France and Italy, complain that the pact is too rigid and that the tight restraint on budget deficits is restricting economic growth.
Others, led by Austria and the Netherlands, insist that any changes to the pact should be minimal and that it must retain the capacity to discipline errant member-states.
Ireland's low level of public debt and its history of budget surpluses may mean that the country could be a beneficiary of reforms that would offer greater budgetary flexibility in the event of an economic downturn.
