Tags: Trichet Opposes Europes Harsh Budget Cutting Plan

Trichet Opposes Europe's Harsh Budget Cutting Plan

Thursday, 21 Oct 2010 08:01 AM

European Central Bank President Jean-Claude Trichet does not fully support new EU fiscal rules agreed in a deal between Germany and France, a central bank spokesman said on Thursday.

"It is correct that the President of the ECB does not subscribe to all elements of the report," an ECB spokesman said following a report in the Financial Times that Trichet wanted the draft proposals scrapped because they did not include a line on his objection to parts of the plans.

EU finance ministers agreed on Monday to toughen the bloc's budget rules to prevent future sovereign debt crises after an agreement struck in France between President Nicolas Sarkozy and German Chancellor Angela Merkel, which diluted initial plans.

Sarkozy backed German calls to amend EU treaties to strip persistent deficit sinners of their voting rights and German Chancellor Angela Merkel accepted French demands to water down sanctions on deficit sinners.

Under the proposals rule breakers would face sanctions only six months after being warned, ignoring the ECB's persistent calls for semi-automatic punishments for budget offenders.

It will now take a political decision by a qualified majority of euro zone governments to start disciplinary action against any state with an excessive deficit or debt level, and a majority of countries can still block any financial sanction.

ECB Vice-President Vitor Constancio told reporters in Frankfurt on Wednesday that the central bank wanted tougher rules, a sentiment matched by fellow ECB board member — and one of the architects of Europe's original fiscal rules — Juergen Stark

ECB WANTED STRICTER REGIME

ECB recommendations for stricter fiscal governance published in June reveal the reason for the bank's dissatisfaction.

It called for a system of semi-automatic punishments for countries running up debts, including stopping access to European funding and aid as well as non-financial measures such as suspending voting rights.

The semi-automatic nature of the rules would mean member countries would have to voice their opposition before the EU would consider halting the sanctions process.

Merkel was pilloried by coalition allies and the media on Wednesday for dropping German demands for automatic enforcement of EU budget rules.

Caught off guard by the deal reached in the French town of Deauville on Monday, Merkel's centre-right allies said German taxpayers who bankrolled Greece's rescue package had been promised automatic sanctions on future debt sinners.

Euro zone officials have also expressed dismay.

The FT said a spokesman for Herman Van Rompuy, the president of the European Council under whom the draft was drawn up, confirmed that a note on Trichet's concerns would be included in the report but declined to comment on the specifics.

Analysts said the ECB's cries may fall on deaf political ears, however, and raised questions whether the central bank would in future be prepared to install controversial measures similar to its current government bond buying program.

"I can't see that the ECB is somehow above France and Germany," said Societe Generale economist James Nixon.

"It keeps the political pressure up and is another bargaining counter.

The ECB is indicating implicitly that they won't be prepared in the future to support sovereigns (governments) that are in financial difficulties, and that things like the ECB's bond-buying program was and will remain a very, very exceptional circumstance," he said.

© 2017 Thomson/Reuters. All rights reserved.

 
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European Central Bank President Jean-Claude Trichet does not fully support new EU fiscal rules agreed in a deal between Germany and France, a central bank spokesman said on Thursday. It is correct that the President of the ECB does not subscribe to all elements of the...
Trichet Opposes Europes Harsh Budget Cutting Plan
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2010-01-21
Thursday, 21 Oct 2010 08:01 AM
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