IMF attacks EU proposals on budget plans

Many of the changes politicians have proposed to the European Union's Stability and Growth Pact are problematic and none are …

Many of the changes politicians have proposed to the European Union's Stability and Growth Pact are problematic and none are really necessary, senior International Monetary Fund (IMF) officials said in the Financial Timestoday.

The IMF officials instead proposed better implementation of the EU's fiscal rules by setting up national fiscal watchdogs to report to national parliaments on the progress a country was making on sound budgetary policy.

"Properly designed, such councils would limit short-termism in budget policies and stem the transparency problems that have surfaced in various guises," Mr Michael Deppler, director of the IMF's European department, and Mr Jorg Decressin, deputy of the EU policy division, said in an opinion piece.

Among the reforms suggested were plans to exclude certain expenditure from the definition of the budget deficit and to set country specific budget targets, they said.

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"Such considerations would lead to endless manipulations. The present rules provide sufficient flexibility to accommodate country specific concerns," they said.

The European Commission has proposed stricter supervision of the finances of EU members in good economic times and giving more time to correct deficits if, for example, countries were undertaking structural reforms.

In addition, it has proposed scrapping the pact's one-size-fits-all objective of balanced budgets with a tailored approach, taking into account the level of a country's debt and - with an eye on new EU members from eastern Europe - their state of economic development.

EU finance ministers meet tomorrow and Thursday to discuss proposed changes with a view to having reforms ready for approval by EU leaders in March.

But in the Financial Timesarticle, the IMF officials were sceptical that politicians would make any improvements to the fiscal rules underpinning the euro currency.