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Tue, Feb 18, 2003 - Page 12 News List

EU ponders impact of Iraq invasion

EUROPEAN ECONOMY Finance ministers meeting in Brussels, Belgium, are likely to discuss the fallout that a US attack on the Middle Eastern nation will have on markets

AFP , BRUSSELS

US Marines with the 1st Battalion, 5th Marines, march in the northern Kuwaiti desert near Iraq on Saturday.

PHOTO: AFP

EU finance ministers, whose slowing economies are putting strains on the EU's stability pact, are about to hold discussions that are likely to be dominated by the economic shock of a war in Iraq, EU officials said.

Ministers from the 12 euro-zone nations are meeting in Brussels on Monday, in parallel with the EU's crisis summit on Iraq.

"It's not formally on the agenda, but given that EU leaders will be meeting at the same time in the same building to discuss Iraq, it's likely that finance ministers will also talk about this," an official said.

The agenda for the euro-group meeting was particularly light and would therefore allow plenty of scope for such a discussion, officials said.

Expectations were high that Pedro Solbes, the EU's economic and monetary affairs commissioner, would dive into the controversy surrounding the 1997 EU's Stability and Growth Pact, which underpins the single European currency.

Last week Solbes hinted that the pact's rules -- seen by some experts as too strict -- could be relaxed in the event of war.

Solbes noted that EU treaties allow for the agreement to be changed in "exceptional circumstances."

"If a war is not an exceptional circumstance, I wonder what is," he said. "In my opinion, a war in itself contains sufficient elements to open a debate under certain exceptional circumstances," he said.

One official said: "There will be interest in what specifically he meant by his comments."

France and Germany, the countries with the biggest deficit problems, have pushed for a more flexible reading of the stability pact. Some experts speculated that the threat of war in Iraq could be the fig leaf needed to reform the pact without jeopardizing its credibility.

Solbes' signal came as France, which has already received an early warning over its rising public deficit, was last year widely thought to have exceeded the stability pact's limit, which requires that euro-zone countries keep their pulbic deficits under three percent of GDP.

Compounding this view, last week's French industrial output figures for December showed the biggest fall for five years.

Germany, which is being penalised for exceeding the three-percent deficit limit last year, was tipped to breach it again this year. The outlook darkened further last week with a report of sharply lower industrial output data.

Although outside the euro zone, Britain has also long pushed for a more flexible interpretation of the stability pact. While the British economy has held up relatively well, last week's massive cut in the Bank of England's growth forecasts is of concern.

The euro group's conclusions will be presented to all 15 EU finance ministers today.

Among other items, ministers will seek to sign a deal on the taxation of savings, following an agreement they reached last month.

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