EU to loosen deficit standards

BRUSSELS, Aug. 31 (UPI) -- The European Union, after years of failing to get its dominant members to abide by deficit standards, has decided to relax those standards.

Joaquin Almunia, the European monetary affairs commissioner, is expected to unveil plans Friday to revise the Stability and Growth Pact, the International Herald Tribune reported Tuesday.

The present rules allow countries to exceed the 3 percent deficit limit under special circumstances, such as if the economy shrank by 2 percent or more in a year. The new proposal would give countries an exemption if their economies contracted at all over a one-year period.

This week's revisions follow the EU's refusal to sanction Germany and France, the two largest euro countries, for consistently violating the pact's deficit standards.

The commission plans to keep its current 3 percent target for permissible deficits, but it would give far greater credence to a country that is violating the ceiling if its economic cycle is in a downturn.

"We are proposing putting more emphasis on a set of broad economic policy guidelines, than on the rigid budget rules which are difficult to apply," an Almunia aide said. "It's not just going to be about budget surveillance."