By Anna McLauchlin - 10th May 2004
The European Commission's grip on EU budgets was dealt a blow by euro ministers on Monday when they rejected its recommendation to warn Italy against overspending.
Ministers at the informal euro meeting on Monday night agreed Rome should be allowed extra time to get its finances in order.
If the formal decision by finance ministers goes ahead on Tuesday as expected, it will be their third concession running to a country in danger of rocking the eurozone's stability,
"The Italian government is committed to keeping the budget deficit below three per cent through timely and effective measures", said Irish Finance Minister and EU president-in-chief Charlie McCreevy.
"The council will assess the measures at the July (finance meeting)".
EU Economic Commissioner Joaquin Almunia told journalists he "regretted" the decision taken on Monday but insisted the commission "is satisfied" with Italian finance minister Giulio Tremonti's assurance that spending will not go overboard in 2004.
And Almunia attempted to play down fears that there are now no official
means to stop governments determined to bust the budget.
"This instrument of the pact can be maintained," he insisted. "It will be maintained and discussed at tomorrow's (finance meeting) and at the meeting of July 5".
The credibility of the measures laid out in the stability pact was already severely damaged in November when ministers voted to sidestep its sanctions over France and Germany's soaring deficits.
Under the stability pact, government spending must not outweigh income by more than three per cent of GDP and a breach of the limit for three years can result in heavy fines.
The latest forecasts from the Brussels executive show Italy is risks breaking the rules this year and it is also running the highest debt level in the eurozone (106 per cent of GDP), which is why the commission recommended reining in Rome's budget under the pact's early warning system.
By voting down the commission for a third time ministers may have sounded the death knell for the stability pact.
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