ECB chief attacks eurozone reform proposals

21st October 2010, Comments 0 comments

In a rare intervention, the head of the European Central Bank, Jean-Claude Trichet, has said he has "objections" to a European Union deal on reforming the eurozone, a spokesman told AFP Thursday.

"I can just confirm Trichet made objections against the agreement. He made a note describing his objections to the agreement," the spokesman said, confirming an earlier story in the Financial Times.

Trichet is one of the most committed advocates of strict budgetary discipline in the euro zone, backing penalties against governments who do not respect the terms of the EU Stability and Growth Pact.

On Monday, after eight hours of talks, European Union finance ministers thrashed out a controversial compromise deal that would put in place tougher penalties for countries that fail to comply with the bloc's fiscal rules.

It came after French President Nicolas Sarkozy said he and German Chancellor Angela Merkel would propose new rules to sanction EU countries.

Under the agreement, a country warned by the European Commission on its budgetary practices would have six months to amend its behaviour before sanctions would take effect.

Germany initially wanted such penalties to be automatic, but Merkel dropped this demand, prompting some in Berlin to accuse her of buckling under fire from Paris.

The EU's president, Herman Van Rompuy, said the planned changes amounted to the eurozone's "biggest reform" since its creation in 1999.

But objections began almost as soon as the deal was clinched.

One of the ECB's most influential members, chief economist Juergen Stark, has already made plain the bank's caution on the plan.

Speaking to reporters in Frankfurt on Wednesday, Stark said the reform agreement "was celebrated as a great day for Europe."

But it "remains to be seen whether this will be a great day and whether in the end the strengthening of the fiscal rules ... will really turn out to be a quantum leap," the ECB economist added.

Trichet has urged European governments repeatedly to make a "quantum leap" in governance and budgetary responsibility to respect the terms of the widely flouted Stability and Growth Pact.

Members of the European Parliament have also slammed the Franco-German deal, with the main political groups accusing Paris and Berlin of imposing their will on the rest of the bloc.

"It is a step backwards, a Franco-German diktat," said Austrian conservative Othmar Karas, coordinator of the European People's Party (EPP) that groups members of the ruling French UMP party and Merkel's CDU.

Karas accused Paris and Berlin of "emptying the substance" of the EU Stability and Growth Pact aimed at setting a ceiling on EU public deficits.

The new measures are for the moment aimed only at the 16 countries that use the euro and will be picked over by national leaders at a summit on October 28-29.

The FT said Trichet had insisted that a report made by the finance ministers should say that "the president of the ECB does not subscribe to all elements of this report."

© 2010 AFP

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