European Union (EU) leaders on Tuesday endorsed an agreement to loosen budget deficit rules, and decided to redraft a controversial plan to liberalize the services market, EU officials said.

Despite concerns of the European Central Bank (ECB), the leaders of the 25-nation bloc gave the green light to an agreement reached on Sunday by their finance ministers to ease the Stability and Growth Pact rules for euro-zone countries.

Under the agreement, it will be easier for euro-zone members to keep their deficits within 3 percent of GDP, the limit set by the pact.

The move comes after Germany and France, who have breached the limit for the past three years, pressed for less stringent rules amid slowing growth.

Leading EU nations had seen the pact as restricting their ability to carry out major economic reforms.

But the ECB argued that the changes would undermine the confidence in the fiscal framework of the EU and the sustainability of public finances in the euro-zone economies.

Some economists shared the ECB concerns, saying a greater tolerance of higher deficits could put pressure on ECB-set interest rates in the euro zone.

During the two-hour summit, the EU leaders also pledged to redraft a controversial plan to liberalize the bloc's services sector.

The current European Commission services proposal did not respect European social welfare standards, said Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the rotating EU presidency.

Current proposals, which are opposed by France and Germany, would make it possible for professionals to work without restrictions in all 25 EU member states.

Critics believe the plans, drawn up by the former internal market commissioner Frits Bolkestein, would result in companies shifting staff to cheaper bases in Eastern Europe, undercutting large EU economies.

There are also concerns that workers from Eastern European countries will flood into the west, exacerbating the already high unemployment levels in Germany.

France has called for the directive to be rewritten to exclude public services and to include specific guarantees on wages and health and environmental standards.

The European Commission, however, is resisting pressure for the directive to be withdrawn.

Commission President Jose Manuel Barroso said the bloc would not work out a new blueprint of the services market, but would make modifications to the existing one.

(Xinhua News Agency March 23, 2005)