Brussels in legal challenge to states over euro

The European Commission last night provoked an unprecedented power struggle when it launched legal action against the finance ministers of the EU's 15 member states for tolerating breaches of the euro's rulebook by France and Germany.

The move sets the stage for civil war between the EU institutions, as the European Commission goes into battle against the member states in the highest profile court case of its kind.

Yesterday's decision was reached after a fierce debate among the EU's 20 Commissioners. But it is the culmination of months of friction over the policing of the so-called Stability and Growth Pact, which governs membership of the euro.

Last night Germany described the decision by the Commission "hard to comprehend", arguing it could slow the European integration project just months before 10 new members are to join.

The German finance minister, Hans Eichel, said: "With a view to the tasks before the European Union in the near future, it would be more useful to concentrate on cooperation instead of confrontation."

Other critics believe that the tactic could backfire. If it loses in court, the Commission's credibility will suffer and, in any event, legal action could polarise views and complicate the task of reforming the pact.

This is not the first time the European Commission, which shapes policy, has taken legal action against the Council of Ministers, where national governments make laws and take decisions, but the case breaks new ground.

Gerassimos Thomas, spokesman for Pedro Solbes, the European Commissioner for Economic and Monetary Affairs, said: "We do not have a precedent in the area of economic and monetary union and we do not have a precedent for exactly the same type of case."

In fact the Commission's legal action is being mounted on a technicality and the object is not so much to overturn the disputed decision of EU finance ministers, but to prevent any repetition.

The dispute was sparked in November last year when France and Germany persuaded the EU's finance ministers to suspend a procedure under which they could have faced massive fines. Both countries admitted that, in 2004, they will breach, for the third consecutive year, a law obliging them to keep their budget deficits below 3 per cent of gross domestic product.

But with growth stagnating in the eurozone, EU finance ministers agreed that further fiscal tightening could have plunged France and Germany into recession.

The Commission's legal experts argue that the governments breached the EU's governing treaty by freezing disciplinary procedures without a formal decision. But Germany argued that the wording of the agreement allowed EU finance ministers discretion over whether to take the action.

The case will be heard by the European Court of Justice in Luxembourg and the Commission has asked for it to be decided under an accelerated procedure. If the judges agree, a result could be reached within six months; if not the case will take about two years.

Even if the fast-track method is used, the Commission, which bows out in November this year, will be near the end of its tenure when a decision is made.

Mr Solbes plans to produce a new paper next month laying out plans to reform the pact and "economic governance". However, the decision to go to court will complicate his task.

Many observers believe that the Commission's efforts would be better directed at creating a set of rules that would be effective.

The president of the European Parliament, Pat Cox, argued: "When you are applying rules you need also to apply common sense."

But the European Commission president, Romano Prodi, said: "We are a Community of law, so such changes have to be debated and decided through clear Community procedures."