French President Jacques Chirac chose Monday’s Bastille Day celebrations to call for possible temporary ways for the EU’s Stability and Growth Pact to be softened and for legislation within the pact to be amended to avoid restricting economic growth.

Chirac, speaking in his traditional live televised interview, said he wanted euro zone finance ministers to "examine together provisional ways of easing" the Stability and Growth pact underpinning their economies. He added that he wanted to see changes "coherent with the imperative of stability, and ensuring growth is not diminished".

The French president added that while he respected the pact's rules, a more political interpretation was needed to allow members of the 12 country euro zone greater freedom to maneuver. "This is not about modifying the stability pact. It's a case of getting the representatives of euro zone nations to examine together the terms of a temporary softening," he said. “(Ministers) must find a solution that is both consistent with the imperative of stability yet that avoids any lowering of growth prospects".

Storming the Stability Pact

On a day when France remembered the historic event that led to the formation of the republic, the timing of Chirac’s statement was not lost on those EU finance ministers who reacted angrily to the French president’s words.

“This is July 14, the day the Bastille was stormed, and now it's the day the stability pact has been stormed,” said Dutch Finance Minister Gerrit Zalm angrily going into a meeting of Ecofin, the group of EU finance ministers, in Brussels on Monday night. “The storming of the Bastille was a better idea.”

"The pact does not need to be modified," said Pedro Solbes, the EU’s economic and monetary affairs commissioner (photo), adding that the European Commission had immediately rejected Chirac’s requests.

Finland’s Antii Kalliomaki told reporters outside the Ecofin meeting, “We have no room for softening the pact, not even temporarily." Austria's Economy Minister Karl-Heinz Grasser said, "We shouldn't even be discussing this - it's one of the pillars of our economic policy and the single currency."

The pact, which aims to keep public debt levels in check and maintain confidence in the common currency, dictates that a budget deficit cannot exceed more than 3 percent of national economic output. France, the euro zone's second biggest economy behind Germany, had a public deficit of 3.1 percent in 2002 and the European Commission's provisional forecasts see it rising to 3.7 percent this year and 3.6 percent in 2004.

Germany’s Finance Minister Hans Eichel, who is himself grappling with a spiraling budget deficit, stopped short of echoing President Chirac's call for a relaxing of the rules, saying that the pact is, in fact, adapted to the current economic situation. “We consider that the pact in its current shape is appropriate to create monetary stability,” said Eichel. “But it is also suitable to achieve economic growth which is more important now. And that is why we don’t need a debate about relaxing the pact.”

Keeping the budget in line

France, Germany and Portugal have all come under fire from the European Commission for allowing their public deficits to exceed the 3 percent limit as they struggle to revive their stagnant economies. However, France's more cavalier approach to the Stability and Growth Pact has been one issue on which it has exchanged open disagreement with Germany, its key ally.

The German government has often pledged to try to keep its deficit in line with the rules – a seemingly empty promise in the light of Germany’s persistent failure to do so despite recent hefty tax cuts initiated to spur growth. France, however, has often brazenly declared that it will not be able to adhere to the pact in its current form and would therefore not even try. Jacques Chirac did, however, offer a softener of his own on Monday by saying that he would, if possible, continue with his electoral promise of tax cuts to stimulate French growth.

France and Germany have failed to adhere to the 3 percent deficit limit for two years now. If the EU’s Executive Commission forecasts are proved right later this year and both countries break the pact for a third year running, the Commission will have no other choice but to either impose fines of several billion euro or bow to pressure and ease the pact’s conditions.