Battling Recession

Instead, attendees of an informal meeting of EU finance ministers in Nice on Friday, Sept. 12, vowed to stick to the rules limiting the size of their budget deficits and to fight inflation by avoiding unjustified public sector wage rises.

"Governments have decided not to increase their (budget) deficits because of the crisis," said Jean-Claude Juncker, chairman of the group of countries that share the euro, at an informal meeting in the French Riviera.

Rather, "fiscal consolidation is necessary," said Juncker, who ran the meeting.

Disappointing GDP forecast

Ministers were invited to discuss the latest economic forecasts of the European Commission, which now expects eurozone gross domestic product to grow by a disappointing 1.3 percent this year.

According to the commission, two of its biggest economies, Germany and Spain, will likely experience technical recessions -- which economists define as two consecutive quarters of economic contraction.

And while other heavyweights such as France and Italy will not, these countries will experience virtually no growth during the second half of 2008.

Eurozone plagued by inflation

The overall slowdown in the European economy comes at a time in which inflation is almost double the European Central Bank's target rate of about two percent due to high oil and food prices.

Unlike the 1970s, when governments responded to a similar situation by amassing huge public account debts, eurozone countries are today bound by European Union rules limiting the size of their budget deficits.

However, there is growing suspicion that countries such as France and Italy will not be able to stick to the budget deficit upper limit of 3 percent of GDP as a result of the crisis.

Meanwhile Ireland, once a eurozone success story, has become the latest member to risk breaching the EU's stability and growth pact, its finance minister has warned.

Commissioner: Meeting achieved consensus

With such concerns in mind, Friday's talks were designed to commit governments to stick to the rules and to cement a common response to the crisis.

And according to Joaquin Almunia, the EU's monetary and economic affairs commissioner, the meeting achieved its objectives.

"Some people were not convinced that ministers would be in a position to have an open discussion and come up with consensus," Almunia said.

Instead, they were "one and the same in their understanding of the need to maintain the stability and growth pact," he added.

Saying 'No' to an economic stimulus package

Asked whether ministers had considered an economic stimulus package similar to the one approved in recent months by the United States administration, Juncker recalled Europe's negative experience of the 1970s.

"We had a small short-term impact and a bad long-term impact in terms of increased deficits and debts, which where then passed on to the next generations."

"I can only hope that they (US) will have more success in the medium term than when we tried it in the 1970s," said Juncker, who has chaired such eurogroup meetings since 2005.

Ministers unanimously agreed to extend his mandate by a further two years on Friday.

While ruling out a contraction in Germany -- the commission expects the country's yearly GDP rate to grow by 1.8 percent this year -- Juncker confirmed that overall European growth would remain "low in the medium term."

And despite the recent appreciation of the dollar, he said the euro remained "overvalued."