France and Germany escape fines for breaking euro rules

France and Germany tore up the euro's rulebook yesterday - infuriating smaller EU countries and the European Central Bank - when they escaped the threat of fines for flouting rules on membership of the single currency.

After a rancorous night of talks, Paris and Berlin persuaded EU finance ministers to spurn moves to discipline them for persistent rule-breaking. Instead ministers accepted pledges of better economic behaviour from France and Germany, suspending the euro's rulebook, the so-called Growth and Stability Pact.

The deal, negotiated at a tense meeting of ministers of the 12 eurozone nations, was a humiliation for the European Commission, which is responsible for enforcing the pact and which had pressed for disciplinary measures. It denounced the agreement, saying it "had no legal basis" and took the EU into "unchartered territory".

The possibility of action in the European Court of Justice has not been ruled out, and the European Central Bank said it "deeply regrets" a deal which carries "serious dangers".

The pact has been on life support for months with France and Germany clearly in breach, but yesterday's decision delivered what one opposition German MEP described as a "third-class funeral". Not only did the ministers' decision put the pact in abeyance, it in effect put paid to the idea that sanctions of up to 0.5 per cent of GDP would ever be applied against recalcitrant nations.

The decision was a brutal reminder of the power of two of the EU's biggest countries to get their way - one which could sour the atmosphere ahead of crucial negotiations on a new EU constitution.

Countries which have obeyed the rules, including Spain and the Netherlands, objected bitterly. Gerrit Zalm, the Dutch Finance minister, said some finance ministers had been intimidated by the "big two".