MNI SOURCES: Eurozone Growth Pact Overhaul Faces Resistance

By David Thomas

     BRUSSELS(MNI) - Big eurozone states may block upcoming proposed changes to

the bloc's Stability and Growth Pact, preferring to keep rules limiting budget

deficits which they have been able to break when necessary anyway, sources close

to discussions told MNI.

     The European Commission looks set to publish its long-awaited review of the

Pact in late January or early February, and its recommendations look likely to

call for any lingering emphasis on the rule limiting budget deficits to 3% of

GDP, which has never proved a binding constraint, to be removed.

     The Commission may also propose rules to protect and promote

growth-enhancing public investment and spending although officials suggest that

there may be difficulties in identifying which investments qualify.

     "One can imagine that there will also be governments who do not see this as

the business of the Commission or at least don't want them to get involved," one

said.

     Some contacts also speculated that there could be differences between

Commission Vice President Valdis Dombrovskis and Economy Commissioner Paolo

Gentiloni, with the latter thought likely to take a more expansive view as to

what qualifies as growth enhancing or sustainable.

     --BENEFITS FROM FLEXIBILITY

     While the Commission looks set to recommend that the focus of fiscal

surveillance be put on sustainability of public debt, some big countries may

push back.

     Sources say they may be reluctant to abandon the discretionary and flexible

approach to violations of the old-style Pact which its complexity has allowed in

recent years.

     "Italy France and Spain have benefited from that flexibility in recent

years - they can live with the system as it is," the official said.

     Such a negative reception for the review may prove a further blow to EU

efforts to streamline and strengthen the governance of the euro zone following

recent setbacks to ESM reform and Banking Union.

     The Commission is due to discuss the review on January 22 although some

sources suggested that its publication may not take place until early February.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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