EU official warns against relaxing stability pact

A senior European Union finance official has warned against any relaxation of the Growth and Stability Pact, underlying the euro.

"I am not so sure that the short-term idea about a flexible interpretation of the Stability Pact would really add to growth," said Mr Johnny Akerholm, chairman of the Economic and Financial Committee (EFC), which runs the EU finance ministers' meeting and a Finnish finance official.

The Tánaiste, Ms Harney, last week advocated a relaxation of the borrowing limits set under the pact. She argued that countries such as Ireland should be allowed run deficits in excess of 3 per cent of GDP in order to finance infrastructural investment.

Speaking after briefing the European Parliament, Mr Akerholm said: "Rather, \ risks reducing confidence in the economy and risks reducing growth rather than adding to growth," he said, adding that governments frequently said they could not implement structural reform measures in times of weak growth.

"Times of slow growth would be the right time to implement measures we think are going to solve Europe's medium- and long-term problems," Mr Akerholm said.

He said it was not necessarily a lack of purchasing power that was leading to the weakness in private domestic demand in Europe but rather weak confidence.

The EFC prepares for EU finance ministers' meetings and comprises two representatives from each of the EU states, one from the treasury and one from the central bank, plus senior European Commission and European Central Bank officials.