Bank of France chief calls on Paristo respect deficit limits

10th June 2004, Comments 0 comments

PARIS, June 10 (AFP) - Bank of France governor Christian Noyer pressed the French government Thursday for measures to bring the country's public deficit below three percent of output by 2005.

PARIS, June 10 (AFP) - Bank of France governor Christian Noyer pressed the French government Thursday for measures to bring the country's public deficit below three percent of output by 2005.

Presenting the central bank's annual report, Noyer called the EU's Stability and Growth Pact pact that underpins Europe's single currency "a particularly important element of cohesion for the eurozone".

Under its terms, European Union members are bound to maintain public deficits below three percent of gross domestic product, and to work towards a surplus in times of economic growth.

Noyer, a member of the European Central Bank's (ECB) governing council, told reporters that bulging fiscal deficits such as those of Britain, France, Germany, Greece, Italy and the Netherlands did not boost economic activity.

"We must avoid the illusion that public deficits favor growth," he said.

The central bank chief maintained that "a significant part of France's degraded public finances is structural", adding that "raising the employment rate depends on the elimination of French economic rigidity".

His comments illustrated a continuing effort by central bankers to convince political leaders that sustained EU growth depended more on reforms rather than quick monetary fixes.

Noyer argued that "price stability is a primary objective of all monetary policy", a day after French Finance Minister Nicolas Sarkozy had criticised the inflation target of two percent set by the ECB.

Sarkozy had also implicitly launched a barb at ECB chief Jean-Claude Trichet by saying that "independence (of the bank) is not an absence of dialogue".

But Noyer said that "empirical observation confirms" that the ECB's medium-term inflation target "appeared appropriate".

Sarkozy replied later Thursday that it "should not shock anyone" if EU finance ministers comment on monetary policy, in a sign of an ongoing tussle between the ECB and politicians over how best to stimulate growth.

Italian Prime Minister Silvio Berlusconi had said Monday that the central bank's interest rates were inappropriate and Belgian Finance Minister Didier Reynders also urged the ECB not to raise them despite a pickup in inflation.

Noyer said Thursday that contacts between the ECB and eurozone governments have been "frank, complete and intense".

The issue harkens back to April 1995 when Trichet, then head of the Bank of France, got into a high-profile row with Jacques Chirac, who was a presidential candidate at the time.

After Trichet responded to a campaign proposal for higher wages, Chirac objected and said: "The governor of the Bank of France is not there to tell the government which economic policy to follow".

But in a sign that the French government may be listening to some of what the ECB has to say, Prime Minister Jean-Pierre Raffarin told the daily Le Monde in its Friday edition that any surplus tax receipts would now be used to reduce the deficit and overall debt.

Noyer said meanwhile that the French central bank intended to sell some of its gold reserves, adding that it had not ruled out an amount "on the order of 500 to 600 tonnes".

The bank would retain funds from the sale, but interest earned on them is to support research that would otherwise be funded from the government's general budget.

© AFP

Subject: French news

 

 

 

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