But Germany and France are set to crash through the 3 percent budget-deficit ceiling during the six-month tenure and Italy will perhaps follow suit in 2004, so there could be a return to the Growth and Stability Pact saga that has dominated the presidency in the past.

Italy's "New Deal" - likened to the plan that relaunched the US economy after the Great Depression of the 1930s - envisages raising as much as 70 billion euros (US$79 billion) a year via bonds issued by the European Investment Bank.

Governments would not take the debt onto their books and would act at most as guarantors. The money would be pumped into economy-stimulating projects, such as building transport links through the Alps and to eastern European countries set to join the EU next year.

Eric Chaney, chief euro-zone economist at investment bank Morgan Stanley, said: "It's a way of cooking the books and I'm personally very sceptical about it... but unfortunately it's going to work because everybody will be very happy to have a way to escape."

The Italian plan may prescribe new medicine for the euro zone's economic ills, but the old stability pact murmurings show no sign of fading.

"The pact is a necessity but, right now, it's making things even worse so it should be adapted," Chaney said.

Last month, Italian Prime Minister Silvio Berlusconi argued for an "elastic interpretation." He said there were times when short-lived deficits were not necessarily a bad thing.

Italy, like some of its neighbours, is also open to the idea of excluding military spending from deficit calculations.

But it is unclear whether the Italians will want to take responsibility for massaging the pact.

Pasquale Diana, an economist at JP Morgan in London, said: "No one wants to move first... but it's not going to go away. The Italians will be under very similar pressures to France and Germany next year when one-off measures expire.

"But Italy will not want to be seen as thinking 'We're in trouble. Let's amend this,'" he added.

Pensions systems that are threatening to implode right across Europe are only making it trickier to balance the books.

Pensions take up more than a third of Italian government spending, and that amount could soar to 60 per cent by 2040 as the over-60s jump from almost a quarter of the population to nearly half.

But pension reforms are a political hot potato. They brought down Berlusconi's government the first time he was leader in 1994, and strikes in France this spring were an ominous reminder.

This time around, Berlusconi has been touting an EU-wide treaty on pensions, which would pass the buck to Brussels.

(Xinhua News Agency July 3, 2003)