Lethargic global growth and rising budget deficits in the euro-zone's biggest economies were expected to dominate a meeting of EU finance ministers that started yesterday.
European officials are increasingly pessimistic about hopes of an early economic recovery, fearing growing tensions over Iraq could push up oil prices and further dampen prospects for growth.
Second-quarter data due for release ahead of the meeting are expected to show the pace of EU growth is even slower than the 1.4 percent yearly forecast by the European Commission in April.
Weak consumer spending and sluggish growth in the US and Japan are also cooling European recovery hopes.
Ministers and central bankers will discuss Europe's response to the slowdown, but their room for maneuver is limited.
Lingering concerns about inflation have prevented the European Central Bank from cutting interest rates. Expanding budget deficits in the euro-zone's three biggest nations give their government's little leeway to cut taxes or boost public spending.
Germany, France and Italy -- which together account for about three-quarters of the euro-zone's economic weight -- are all struggling to stay within the boundaries of the "stability pact" which binds the 12 members of the currency bloc to keep their deficits below 3 percent of GDP, and strive for balanced budgets by 2004.
Although the Italian government would like to see the pact relaxed, other nations are expected to stress their support for the targets despite their trouble sticking to them.
"Germany stands firmly by the stability pact," Finance Ministry spokesman Thomas Gerhardt said Thursday. "There's no reason to change it."
Two weeks away from a general election, the government of Chancellor Gerhard Schroeder does not want to appear to be undermining the strict budget discipline rules adopted in the late 1990s. The rules were adopted on Germany's insistence to ensure the new common currency would not be weakened by sloppy government finances.
Diplomats from Denmark -- which holds the EU's rotating presidency -- said they don't expect any serious discussion about changing the stability pact until after the Sept. 22 vote in Germany.
Also on the agenda at the Copenhagen meeting are discussions on how to pay for the planned entry into the EU of 10 new members in 2004; efforts to agree minimum levels of taxation on the use of coal, gas and other energy sources across the EU; and a review of negotiations with Switzerland, the US and other nations aimed at stopping citizens dodging taxes by moving their savings around the world.
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