European Union (EU) leaders have endorsed relaxed budget deficit rules following pressure from France and Germany, the two largest economies of the 12 nations that use the euro currency.  

The leaders approved a deal negotiated by their finance ministers Sunday that gives countries more time to bring their budget deficits back under the three percent EU limit. They are also allowed to claim numerous exemptions for public spending.

French President Jacques Chirac said spending on defense, development aid and research investment will receive special treatment. However, the European Central Bank has warned that loosening the rules could hurt confidence in the euro.

Meanwhile, the fight over how much to open cross-border competition for businesses ranging from plumbers to computer consultants featured prominently. The European Commission says liberalizing services, which are about 70 percent of the EU economy, will boost investment and employment, and get the European economy growing again.

But critics say this would bring on a wave of low-cost service companies from Eastern Europe, taking away jobs from Western Europeans.  France and other nations want far-reaching changes in the plan.

Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the EU presidency, said the meeting agreed to go forward with the proposal, but it must first be amended to address social concerns.  He was heard through an interpreter.

"We also said that the services market that we want to render more operational, when it fully takes place, needs to preserve the European social model," he said.

European Commission President Jose Manuel Barroso said some proposed changes in the services directive were discussed. He said Europe needs reform and new confidence in its economy.