ECB counters growing criticism of stability pact

The European Central Bank (ECB) has defended the Stability and Growth Pact and chided EU politicians for attempting to meddle with its rules. The ECB's Governing Council took the unusual step of issuing a statement on the single issue of the pact following its fortnightly meeting in Frankfurt yesterday.

"The principle of budgetary discipline enshrined in the Treaty and the Stability and Growth Pact are indispensable for Economic and Monetary Union," the statement said.

The budgetary rules surrounding the euro have come under attack in recent weeks as Germany, France and Italy show signs of breaching the ceiling on budget deficits of 3 per cent of GDP. The EU has already postponed the deadline for balancing budgets from 2004 to 2006 but France has indicated that it will not feel bound even by the new deadline.

The Commission President, Mr Romano Prodi, caused a storm of controversy last week when he described the Stability and Growth Pact as "stupid" and "rigid".

The ECB hit back yesterday, saying that the pact helped to secure sustainable public finances and to guard against fiscal shocks.

"Contrary to the claims of its critics, the Stability and Growth Pact also provides sufficient flexibility after 'close to balance or in surplus' positions have been reached, as automatic stabilisers can then operate fully. Problems have arisen not because the rules are inflexible, but as a result of some countries' unwillingness to honour their commitment to respect the rules," the statement said.

The ECB's irritation with criticism of the pact by EU politicians is unmistakable and the statement includes a veiled threat to keep interest rates at their present level unless the criticism stops.

"By ensuring sustainable public finances and by providing enough flexibility for the full operation of automatic stabilisers in periods of economic weakness as well as strength, the Stability and Growth Pact also has a favourable effect on macroeconomic stability. This facilitates achieving price stability and fosters confidence in the euro area's economic prospects," it said.