Stability pact

Speaking in an interview with the Financial Times Deutschland, French Finance Minister Christine Lagarde said EU countries ought to reconsider applying the bloc's rules on fiscal spending.

Many EU countries have reacted to the economic downturn with emergency stimulus bills, which have blown out national budgets. Lagarde said the situation should be treated as a one-off.

“It is my opinion that deficits brought about as a result of the crisis should be treated separately,” Lagarde told the German newspaper.

Three percent is wishful thinking

According to the EU's Stability and Growth Pact, member states are supposed to keep their budget deficits below three percent of gross domestic product (GDP), and are not allowed to let total government debt exceed 60 percent of GDP.

But in the current economic climate, that is just wishful thinking. The European Commission expects 13 of the 16 countries that use the euro to breach the budget deficit rules between now and next year. Germany and France are expected to notch up deficits of 5.7 and seven percent respectively, with several other European countries looking at even bleaker prognoses.

Lagarde called for debate on how to account for extra spending measures that could be attributed to the economic crisis. Although she said such spending was easy to identify, she rejected the idea of simply deducting it from budget estimates for the sake of nudging nations closer to the three percent limit.

Lagarde also reaffirmed her overall support for the stability pact, saying "we need collective discipline, because without it, problems would arise, as we are all in the same currency and economic zone."

tkw/AP/Reuters/dpa

Editor: Chuck Penfold