Bundesbank vice-president Mr Juergen Stark said in an interview today the debate about the European Union's Stability Pact was hurting confidence and monetary policy must react if deficits threaten stable prices.
The pact was a cornerstone of the monetary union, giving governments an essential role in helping maintain price stability alongside the European Central Bank, Mr Stark told Germany's Frankfurter Allgemeine Zeitung.
"Monetary policy must react if excessive public deficits were to hurt price stability," he said.
The Stability Pact requires governments to reach balanced budgets over the medium term but particularly the euro zone's largest countries - France, Germany and Italy - are struggling to meet deficit reduction targets.
Euro zone governments have openly discussed how strictly they should interpret the pact because the economic downturn has made it harder for them to meet their self-imposed targets.
The discussion about the Pact was hurting investor and consumer confidence and thereby undermining growth, Mr Stark said.
Mr Stark also said he was in favour of giving the European Commission the power to send early warnings over excessive deficits without fiat from finance ministers.
He was in favour of reducing the structural deficits by 0.5 per cent each year as euro zone countries have recently agreed on doing, as this was a concrete measure within the margins of the pact.