EU Commission starts legal action over budget deficit

Wednesday, 14 January 2004 12:00 AM

The European Commission has announced that it is to take legal action against the decision not to fine France and Germany for their budget deficits.

The French and German economies have been running counter to the euro's Growth and Stability pact for the past two years now, and are widely expected to continue in breach this year.

The pact caps budget deficits are three per cent of the gross domestic product, but France and Germany argued that the rules should be relaxed during an economic downturn, and that spending cuts would harm their economies chances of recovery.

In November the 15 finance ministers agreed not to impose the penalties demanded by the euro pact to the ire of the European Commission, which at the time warned that the decision could undermine the pact and hinted at legal action. Tonight they made good on that threat and announced they had asked the European Court of Justice to consider the case under its fast track procedures.

The decision is likely to be welcomed by some of the smaller eurozone member countries which were incensed that after making significant economic sacrifices to remain within the pact others were allowed to break the agreed rules.

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