The European Commission will have another go this week at making it harder to flout the Stability and Growth Pact after the EU constitution fell short of its hopes on this count.
The EU executive said on Monday it was disappointed that European Union leaders last week agreed on a constitution that left the Commission's budget policing powers little changed - a far cry from the enhanced authority envisaged under an earlier draft.
European Central Bank Governing Council member Klaus Liebscher also regretted a missed opportunity to improve the enforcement of budget discipline rules that Germany and France are expected to flout for the third year running in 2004.
But there is still plenty of room to change the application and interpretation of the pact and the Commission will on Thursday have an initial discussion of how to do this before pinning down its recommendations in subsequent weeks.
European Monetary Affairs Commissioner Joaquin Almunia gave a foretaste of the debate that lies ahead by stressing the need for budget discipline in good economic times.
"The problem we have in our public finances is that in good times some countries did not fulfil the task of consolidating their public finances so in a downturn you will have problems," he said.
"In the future we will have to add incentives" for countries to improve their fiscal positions in good times.
The Commission has repeatedly said it wants to give more emphasis to countries' debt position and the underlying budget position which excludes the impact of economic swings.
This would not mean a fundamental change to the Stability Pact, which ECB President Jean-Claude Trichet said on Monday was a "fundamental underpinning" of European monetary union and must be respected.
Sources told Reuters earlier in June the Commission was also considering using national institutes to help it police budget policies and offering temporary budget leeway to states that had wiped out deficits and whose debt outlook was sustainable. These and other ideas will act as a launching pad for talks with EU states in the coming months on how to revamp the pact.
EU sources said the Commission had been on the losing end of enough budget battles to know the value of building a consensus and winning backing from EU governments.
The rebuff it suffered in the constitution was just the latest in a string of defeats, the most damaging of which was EU finance ministers' decision last year to suspend budget disciplinary action against Germany and France.
While the Commission has gone to the EU's highest court, the Court of Justice, to fight that decision, sources said it was keen to avoid repeated public wranglings.
"One of the things that the Commission learned from the ECJ fight was that a confrontational strategy did not get it anywhere so it is trying to reach a consensus," said one source.
Still, arriving at such a consensus may be tough if there is a repeat of the fight over the constitution that saw Germany intent on watering down the Commission's budget policing powers and the Netherlands adamant on strengthening them.
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