No Breakthrough on EU Budget Rules

Ministers from the 12-nation eurozone claimed they made progress in marathon talks overnight although they didn't reach a breakthrough, and closed with a call for a last-ditch meeting on the eve of a March 22-23 summit aimed at finalizing the new rules.

"There are a lot of issues that are open," EU monetary affairs chief Joaquin Almunia said, as he arrived for fresh talks among the full, 25-member EU after Monday night's meeting in Brussels. "I am not very satisfied."

The EU's stability and growth pact was left in tatters after EU heavyweights France and Germany were let off the hook in 2003 despite repeatedly breaching its deficit ceiling. Paris and Berlin have lobbied hard to get more flexibility into the pact, raising the ire of smaller countries such as Austria and The Netherlands, which have been pushing for fiscal discipline to be upheld.

Mixed reactions

Monday night's talks broke down over German opposition to the proposed reforms, which nonetheless took into account much of the eurozone heavyweight's wish list. The ministers -- joined on Tuesday by their counterparts in the full, 25-member EU -- agreed to call a special meeting on Sunday, March 20.

The clock is ticking for ministers to agree on reforms to the pact -- which enshrines the rules underpinning Europe's single currency -- before a March 22-23 summit at which EU heads of state hope to approve the changes.

German Finance Minister Hans Eichel said he was "optimistic" about the prospects for a deal at the next meeting while his French counterpart Thierry Breton hailed the overnight talks as "a good meeting."

Italian Finance Minister Domenico Siniscalco also said the ministers were moving in on an agreement although some details still needed to be ironed out.

"Several refinements are still needed ... but we made progress," he said. But Belgium's Didier Reynders sounded skeptical about what more can be done. "I believe we can't go further than the text which we worked up overnight," adding that the latest draft was "at the limit of what is reasonable."

Franco-German concerns

The key tenet of the stability pact says eurozone members must keep public deficits below three percent of output, a limit some countries -- especially France and Germany -- have found difficult to meet.

Before Monday evening's talks the EU's Luxembourg presidency had circulated a fresh draft of proposed reforms aimed at making minds meet. The proposals addressed many of the French and German concerns, suggesting, in particular, that mitigating circumstances should be taken into account before launching excessive deficit procedures.

Such circumstances could include German reunification costs, spending on research and development, pension reforms, defense spending, and, unexpectedly, the impact of the rise of the euro. The proposals also suggest that countries in breach of the deficit limit should have an extra year to comply with the 3 percent limit, if their economic growth is less than 1 percent over three years.

German Chancellor Gerhard Schröder is scheduled to meet Luxembourg Prime Minister Jean-Claude Juncker later on Tuesday to present France and Germany's joint position on reforming the pact.