Pledges by eurozone governments to cut budget deficits are likely to be eyed with greater scepticism in coming months following last year's severe blow to the disciplinary process underpinning EU budget rules.
The annual European Union ritual of reviewing medium-term budget plans kicks off on Wednesday when the European Commission gives its opinion on the uncontroversial medium-term budget plans of Finland, Austria, Denmark and Sweden.
The verdict is set to be favourable as three of the four ran surpluses in 2002 and one - Austria - a minor deficit.
But November's decision by finance ministers (Ecofin) to waive the rules for France and Germany has created doubts about the importance of such report cards and raised questions about the credibility of EU economic governance.
"These reports remain important for economic and budgetary planning to the extent they are plausible assumptions about fiscal outlook," said Norman Williams, European Economist at Barclays Capital in London.
"But Ecofin's decision last November means there will be much less attention paid to them and it's inconceivable now, in the short term at least, that any country will face sanctions for excessive deficits," he added.
The Stability and Growth Pact, under which budget deficits are not supposed to exceed three percent of gross domestic product, was adopted in 1997 to underpin the euro by preventing eurozone member states from running up deficits and igniting inflation.
But Germany and France, the two biggest countries in the 12-nation bloc, both breached the three percent limit in 2002, with Germany's deficit reaching 3.5 pct of GDP and France's 3.1 percent.
Both countries have said they would breach the limit again in 2003 and are set to do yet again this year.
The Pact called for disciplinary steps against Germany and France, but finance ministers suspended the whole process, angering the EU executive.
Commission President Romano Prodi has said he would prepare an initiative to adapt the Pact, together with the Commission's annual Broad Economic Policy Guidelines, into a more effective instrument of governance.
The Commission has also mooted a legal challenge against the finance ministers' decision, but has not made a final decision.
"I think such a decision will come soon, within this month, but I cannot tell you exactly when," Commission economic affairs spokesman Gerassimos Thomas said on Tuesday.
Monetary Affairs Commissioner Pedro Solbes, who gives a news conference on Wednesday, may give more details on planned legal action.
The budget plans of Austria, Finland, Denmark and Sweden will be discussed by finance ministers at their first 2004 meeting on January 20.
The following meeting on February 10 is likely to look at the budget plans of France, Britain, Italy, Greece, the Netherlands and Luxembourg, officials have said.
The March meeting will wrap up the reviews and look at Germany, Spain, Portugal and Belgium's medium term plans.
Despite doubts over the budget disciplinary process, governments still remain committed to budgetary balances with little sign of profligate spending.
"It shows that countries still believe that some degree of fiscal rectitude is still in their own interests and this is encouraging at least," Williams said.
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