Not a pretty picture

This evening, eurozone finance ministers will meet in Brussels for what might be a vain attempt to finalise a deal on the EU's growth and stability pact.

What might scupper the deal is Germany's insistence that weaker fiscal rules should apply, with Schröder demanding that payments made to the EU budget should be excluded from consideration when calculating budget deficits under the 3 percent of GDP rule.

Germany, which is set to break the deficit limit for the fourth year running, is also demanding that the costs of reunification should be excluded, a ploy which is widely seen as Schröder's attempt to curry favour ahead of next year's federal elections.

Since reunification costs currently amount to about four percent of German GDP, this should – if approved – get Schröder off the hook, although his finance minister, Hans Eichel, is not to keen on this idea.

However, Eichel cannot push too far for his own agenda, of keeping the pact tight, as Schröder could simply unpick any agreement between finance ministers at the economic European Council to be held on 22-23 March.

The task of brokering an agreement lies with Jean-Claude Juncker, Luxembourg's prime minister and finance minister, whose country holds the EU presidency; but his task his further complicated by France and Italy.

The French government is pushing for research spending to be added to a list of "relevant factors" to be taken into account when deciding whether to discipline a country with a big deficit,

The Italians on the other hand, are refusing to accept that the pact should be remodelled to include targets for reducing public debt: Rome's debt-to-GDP ratio of 106 per cent is the second highest in the eurozone. Berlusconi is taking a robust line, saying that: "If colleagues aren't reasonable, then I will stand up to them."

Junker is planning to have a paper outlining presidency proposals discussed by the 12 eurozone finance ministers on Monday night, and by all 25 EU finance ministers on Tuesday, but it looks like being a long, hard night, with no guarantee of agreement.

Meanwhile, the messing about threatens to undermine the credit ratings of the eurozone countries. The rating agency, Standard & Poor, is warning that it could lead to an increase in the borrowing costs for governments and dash hopes that the ratings of all eurozone countries would converge.

Once again, reality is staring the EU in the face – and it is not a pretty picture.