Undermining EU budget rules undermines trust: ECB

3rd April 2014, Comments 0 comments

Undermining Europe's budget rules undermines confidence in the region and its single currency, European Central Bank President Mario Draghi said Thursday.

"Undermining agreed rules undermines trust," Draghi told a regular monthly news conference when asked about comments from new French Finance Minister Michel Sapin regarding the "pace" of France's deficit reduction.

Draghi noted that "euro area countries have made important progress in correcting fiscal imbalances."

But they should "not unravel past consolidation achievements and should put high government debt ratios on a downward trajectory over the medium term, in line with the Stability and Growth Pact," Draghi said.

In his first public comments since being named on Wednesday, French finance minister Sapin said he would work with the European Commission to "find the path to common interests".

France has already won a two-year extension, to 2015, to bring its public deficit below the 3.0 percent level required under the Stability and Growth Pact, but fell behind pace last year.

With the economy stagnant and joblessness rising, President Francois Hollande's government is struggling to impose the spending cuts or tax increases needed to rein in the deficit and appears to want to pause on austerity to focus on boosting growth.

"Europe will be in better shape when France is in better shape," Sapin said.

"We must together share the only important concern: more growth for more jobs, while gradually rebalancing our public finances."

His remarks were in contrast to a warning by the Eurogroup of eurozone finance ministers on Tuesday that France must respect its promises to meet an already delayed EU deadline for budget limits.

Sapin said that France would not abandon efforts to reduce the deficit but provided no timeline.

"The goals are goals that we will meet," he said several times.

Italy's new government under Prime Minister Matteo Renzi has also signalled a shift from austerity to growth, announced a 10 billion euro tax cut for low-income families.

Italy, however has some room before hitting a 3.0 percent public deficit.

The ECB's opinion is important as the central bank has declared under its anti-crisis policies that it may unilaterally advise eurozone governments on policy if it believes they are heading for a crisis and not provide emergency help unless they enact reforms.

Draghi said government fiscal strategies "should ensure a growth-friendly composition of consolidation to achieve better quality and more efficient public services, while minimising the distortionary effects of taxation.

"Further decisive steps are needed to reform product and labour markets with a view to improving competitiveness, raising potential growth, generating employment opportunities and making euro area economies more flexible," he added.

© 2014 AFP

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