BRUSSELS - European Union leaders approved Tuesday a deal to relax long-strained EU fiscal rules, drawing immediate fulsome praise from the two main beneficiaries, France and Germany.
Both EU heavyweights had lobbied hard for the changes to the 1997 Stability and Growth Pact, which enshrines the rules underpinning Europe's single currency.
The EU budget pact has been in tatters since November 2003 when France and Germany were let off the hook despite repeatedly breaching its public deficit limit of three percent of output.
EU finance ministers struck a last-minute deal Sunday to revise the pact, allowing countries to be exempt from disciplinary action for violating the rules in a large number of "relevant" circumstances, including costs related to Germany's reunification in 1990.
French President Jacques Chirac, who had warned against "technocratic brutality" in a new pact, hailed the revision orchestrated by the EU's current Luxembourg presidency.
"I welcome the remarkable work of the presidency to make a more realistic, a more relevant and more flexible pact. A more intelligent pact is a pact that will be better accepted and better respected," he said.
Earlier, German Chancellor Gerhard Schroeder applauded the man who brokered the weekend accord, saying: "The Luxembourg (EU) president Jean-Claude Juncker has done first-class work."
German Finance Minister Hans Eichel said the revision to the rules made them more credible.
"With the reform of the pact we have more economic good sense, and at the same time it is more credible because it is more realistic."
The revision of the pact left intact its key rules requiring states to keep their public deficits to less than three percent of gross domestic product and public debt to less than 60 percent of GDP.
But it introduced numerous loopholes that would allow certain spending items such as pension reforms or costs related to Germany's reunification to be excluded from deficit calculations.
The European Commission, the EU's executive arm tasked with policing the pact, has praised the deal as "very positive" saying it restores credibility to the EU's much-maligned fiscal rule book.
But the European Central Bank (ECB), the guardian of the euro, expressed "serious concern" about the ministers' proposals, which were approved unchanged Tuesday.
"It must be avoided that changes in the corrective arm undermine confidence in the fiscal framework of the European Union and the sustainability of public finances in the euro area member states," the ECB said Monday.
Although the ECB made no mention of moving its key rates, some analysts warned that the relaxation of the EU's fiscal rules could put pressure on interest rates to rise in the long term.
03/22/2005 20:09 GMT