SEVILLE, Spain, June 21 (UPI) -- European Union finance ministers agreed to relax rules underpinning the euro early Friday in a bid to accommodate France's ballooning budget deficit and avert a damaging row with Paris ahead of today's EU summit in Seville.
The EU's growth and stability pact, which was signed in 1997, requires the union's 15 member states to keep deficits below 3 percent of gross domestic product until 2003 and balance their budgets by 2004.
However, a recent audit carried out by France's new center-right government, estimates that the country's budget deficit is set to grow to 2.5 percent of gross domestic product by the end of the year and remain perilously close to the 3 percent limit in 2003.
The situation is expected to be compounded by President Jacques Chirac's election pledge to increase spending while cutting taxes -- traditionally considered a recipe for greater indebtedness.
Several other EU countries are also dangerously close to the stability pact limit. Earlier this year, Germany and Portugal narrowly escaped receiving a warning letter from the European Commission for failing to balance their books.
The compromise agreed by finance ministers in Madrid in the early hours of Friday morning commits EU countries to achieve "near balance" by 2004, giving France and other errant countries ample room for maneuver.
The fudge was condemned by the European Central Bank and more fiscally prudent states, such as Britain and the Netherlands. "Deciding these things on an ad hoc basis is bad for the credibility of the whole system," said the UK Treasury.
However, the latest bending of the stability pact's rules does not seem to have affected the performance of the European Union's fledgling currency. The euro peaked at $0.9647 Thursday, 13 percent up from February and its highest rate against the dollar for two years.
EU leaders meeting in Seville are likely to note the recent surge in the euro's value but urge structural reforms to keep the six-month old currency buoyant.
In particular, heads of state are expected to call for further measures to increase labor force participation, reduce incentives for early retirement and remove obstacles to labor mobility.
