Nice, France - The European Union's finance ministers were Saturday discussing plans to reduce VAT rates for restaurants and other labour-intensive sectors in a bid to create more jobs at a time of economic slowdown.

The proposal is opposed by those member states which worry that it would merely result in lower tax revenues and higher budget deficits.

At their informal meeting in Nice, ministers would also be reviewing how best to respond to rising inflation and lower-than- expected growth.

The issue was already addressed on Friday by the finance ministers of the 15 countries which share the euro.

Their chairman, Luxembourg Prime Minister Jean-Claude Juncker, acknowledged that Europe was experiencing a worrying slowdown, but insisted that "it shouldn't be said that Europe is on the brink of recession."

Ministers also vowed to stick to EU rules limiting the size of their budget deficits, rather than try and spend their way out of the crisis through a US-style fiscal stimulus package.

The VAT debate concerns an initiative by Laszlo Kovacs, the EU's official in charge of taxation, who in July proposed lowering value- added taxation rates on certain service sectors such as hotels, restaurants and hairdressers.

Reduced VAT rates would also be extended in the housing sector, which is experiencing a severe downturn in Spain, Britain and other member states.

As well as harmonizing rates across the 27-member bloc, Kovacs' proposal aims to boost economic activity in labour-intensive service sectors, and thus create more jobs.

"There are sectors, like restaurants, which have a very significant capacity to give more jobs. So why not reduce VAT rates for them?", Belgian Finance Minister Didier Reynders said ahead of the talks in Nice.

But others are more sceptical.

Germany's Peer Steinbruck, for instance, has pointed out that just reducing the VAT rate on restaurants, from the current 19 per cent to the proposed 7 per cent, would cost his state 3.6 billion euros (5.1 billion dollars) in lost revenues.

"We are not certain that reduced (VAT) rates would be passed on to consumers," noted Austrian Finance Minister Wilhelm Molterer, suggesting ministers were unlikely to reach the unanimity that is required for tax-related decisions. (dpa)