19th Oct 2019

Trichet defends discipline of euro pact

The President of the European Central Bank, Jean-Claude Trichet, has issued a strong warning against changing the euro rules to allow countries that break the pact to slip off the hook.

Speaking in Frankfurt on Thursday (3 February), after an ECB meeting at which interest rates were left at the historically low level of 2 percent, Mr Trichet insisted that the so-called "corrective arm" of the euro rules should remain untouched.

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The rules state that EU member states must not run a budget deficit higher than three percent of gross domestic product (GDP). If countries break the rules, they are subject to a disciplinary procedure which in theory could lead to large fines – this is the "corrective" part of the Stability and Growth Pact.

"As regards the corrective arm of the Pact, the mechanisms in place must remain strong and credible in all respects", said Mr Trichet.

"It would therefore be counterproductive to change the Regulations, dilute the three percent deficit limit or weaken the excessive deficit procedure", he added.

He concluded that the ECB was "very attached" to the Stability and Growth Pact but recalled that it was down to the European Commission and the member states to take the final decision on reforming the euro rules.

However, he said that he was "fully on board" with proposals to reform the so-called "preventive" arm of the Pact.

The Commission has set out proposals to ensure that member states do more to save money during periods of strong economic growth to prevent excessive deficits in economic slowdowns.

"In that period [of strong economic growth], you have to put aside what is necessary to weather what happens when you are in difficult times", declared Mr Trichet.

Member states hope to achieve agreement on reforming the euro rules at their Spring economic summit in March.

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