ECB President Jean-Claude Trichet opposes relaxation of the Stability and Growth Pact rules

In the early hours of Tuesday morning, EU Finance Ministers called an emergency negotiating session on the so-called euro stability pact rules after marathon talks broke up without an agreement on the demands of eurzone countries such as Germany and France who are seeking relaxation of the rules.

“We have made good progress, it’s still difficult but we are progressing toward an agreement,” Jean-Claude Juncker, Luxembourg prime minister, said after chairing the marathon 10 hours of bargaining.

"I am not very satisfied," European Monetary Affairs Commissioner Joaquin Almunia said after the meeting. "In some issues, we are going backwards. If we do not get an agreement, the consequences would not be good for anyone."

The Euro Stability and Growth Pact (SGP) was agreed in 1997 to ensure that national budgetary policies would support "stability oriented monetary policies" and to allow "Member States to deal with normal cyclical fluctuations while keeping the government deficit within the reference value of 3% of GDP". It also included a limit of government debt of 60% of GDP.

Germany which was a leading suporter of the SGP in the 1990's, has been seeking to exclude expenditures on German unification from the spending criteria as it has failed in recent years to meet the 3% of GDP limit budget target and the 60% limit. France has also exceeded the limits and wants changes.

European Central Bank (ECB) President Jean-Claude Trichet opposes any relaxation of the rules.

At the EU Finance Ministers' meeting, Jean-Claude Juncker, the cuurent President of the European Council proposed making the rules of the Stability and Growth Pact less stringent on countries that breach deficit limits because of a downturn in the economy or the costs of changes to shore up pension systems.

The Financial Times reported that Germany was very unhappy with the proposals Juncker floated on Monday, according to officials, mainly because there was no explicit clause exonerating German reunification costs when measuring the country’s compliance with the EU deficit rules.

Hans Eichel, Germany's Finance Minister, put a brave face on Monday’s talks according to the FT, saying only that things had gone better than he had believed they would and he was optimistic for a deal later on.

Juncker's 14-page proposal on changes to the SGP, contain more extensive let-out clauses for states that breach the limit on deficits and debt: 3 percent of gross domestic product and 60 percent of GDP, respectively.

The 12 euro zone ministers will be joined by colleagues from the 13 other EU countries later on Tuesday.

Austria has vowed to resist the suggestion that Germany would be allowed off the hook for the expense of reunification back in 1990.