7th Jul 2022

Bundesbank attacks Brussels' euro reform plans

  • The debate on the euro rules has begun (Photo: European Commission)

Commission proposals to reform the rules underpinning the euro today received heavy criticism from Germany's Central Bank, the Bundesbank.

"The Bundesbank is of the opinion that the proposed changes will not strengthen but weaken the stability pact", said the Bank, referring to the euro rules.

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The Bank expressed its concern that budgetary discipline would be undermined.

"[The plans] will reduce the incentive for euro zone countries to pursue solid budget policies and, at the same time, send a wrong signal to those countries that have not yet adopted the single currency", continued the statement.

And the Bundesbank added that the long-awaited proposals - unveiled last Friday (3 September) - would "make the rules more complicated and complex, thereby impairing its ability to be implemented".

Opening the debate

In response, a spokesman for the European Commission said, "we opened the debate so everyone can say what they think. That was the purpose of it".

The Commission's proposals allowed a slight loosening of some aspects of the rules, permitting countries that overstep the three percent budget deficit ceiling more time to rectify the situation.

The plans also place more emphasis on the debt levels of euro zone countries and give euro member states more leeway to run higher deficits in periods of slow growth.

Split in Germany

Although the Bundesbank no longer has the task of setting German interest rates, it still commands great respect in the financial world.

"The comments are politically important because they demonstrate a split within Germany", said Tilman Brück, head of the international economics department at the German DIW economic institute.

The German government has been one of the main supporters of reforming the rules.

Mr Brück said that the Bundesbank is "genuinely concerned" that a loosening of the rules will result in German fiscal irresponsibility. "They want to keep the lid on public expenditure", he explains.

He also believes that the rules do need to be changed but that the reform proposals could be improved.

"Simply sticking to the old pact would not have been helpful", he says. "But softening a pact that is no good does not make it any better".

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