McCreevy insists pact was not 'stabbed in the back'

The Minister for Finance has rejected suggestions that the  decision by euro zone ministers to suspend action against Germany and France for breaching budget rules underpinning the euro has damaged the Stability and Growth Pact.

"I do not accept that the pact was stabbed in the back," Mr McCreevy said today.

Mr McCreevy was one of eight euro zone finance ministers to vote in favour of asking Berlin and Paris for a political commitment to cut deficits that are set to break EU limits for the third year in a row in 2004.

The ministers sought such a commitment instead of pushing Germany and France into a disciplinary process whose ultimate sanction is a fine.

Spain, the Netherlands, Finland and Austria voted against the decision and Spanish Prime Minister Jose Maria Aznar called it "not a good day for Europe".

The Belgian Finance Minister Mr Didier Reynders, who reluctantly voted for the deal, spoke of a dangerous precedent that could make it harder to negotiate a new EU constitution next month.

Minister McCreevy however shrugged off suggestions that France and Germany had bent the rules in order to protect themselves. "We are not in a Utopian world to enforce a set of rules regardless of the effect it will have on populations," Mr McCreevy said.

"Politics is about the betterment of the people we represent," he added.

Labour's spokesperson on Finance, Ms Joan Burton said the Pact had been seriously undermined following today's suspension of disciplinary action against Germany and France.

She accused the Minister for Finance, Mr McCreevy of having a contradictory attitude to the European Union's budgetary rules and called on him to use his presidency of ECOFIN  from January to June to establish a renewed pact within the community.

European Union Economic and Monetary Affairs Commissioner Mr Pedro Solbes said today that the overnight decision had no legal basis.

He said the EU's Stability and Growth Pact was not suspended despite the decision.

The Stability and Growth Pact  pact, which aims to prevent euro zone states from running budget deficits of more than 3 per cent of their gross domestic product, was agreed before the euro was launched in 1999 - at Germany's insistence - and is designed to limit government borrowing and protect the common currency's credibility.

Mr Solbes said ministers were entering uncharted territory that would make it harder to enforce the rules drawn up before monetary union to underpin the euro.

"The Commission deeply regrets that these proposals are not following the spirit and the rules of the (EU) treaty and the Stability and Growth Pact," Mr Solbes said, publicly contradicting comments made by Italian Finance Minister Mr Giulio Tremonti who had earlier said the deal reached was in line with the spirit and letter of EU budget rules.

The European Central Bank's governing council is reportedly holding an extraordinary discussion by teleconference on this afternoon about the near-breakdown of the pact.

Additional reporting Agencies