ECB chief criticizes EU deal on spending rules

AP News
Posted: Mar 15, 2011 10:51 AM
ECB chief criticizes EU deal on spending rules

The head of the European Central Bank criticized a European Union deal on public spending limits and economic surveillance, which was described by several finance ministers as a historic moment.

The bank's President Jean-Claude Trichet said Tuesday the new rules, which make sanctions for overspending governments more automatic than they were before the continent's crippling debt troubles, did not sufficiently address the lessons from the crisis. He urged the European Parliament, which has to approve the final legislation, to make them stricter.

The package on economic governance is part of the EU's promised "comprehensive solution" to the crisis, which has already pushed Greece and Ireland into multibillion euro bailouts. The new rules target government debts and deficits as well as dangerous economic imbalances such as high current account deficits and excessive private debt levels

However, it gives national governments some leeway to delay or even stop sanctions and the ECB believes that could lead to a repetition of the current troubles. That level of discretion had previously angered fiscally prudent countries like Sweden and the Netherlands.

On Tuesday, the Dutch and Swedish finance ministers said they were happy with the new deal.

Their change of mind appeared to stem mainly from a sentence attached to the conclusions of Saturday's eurozone meeting, in which leaders decided on the broad outlines of its crisis strategy. It says that governments, when deciding on sanctions, should, as a rule, follow recommendations from the European Commission, the EU's executive, and had to explain any deviation in writing.

"To some extend this is a little bit of a historic moment," said Swedish Finance Minister Anders Borg, while also trying to soothe Trichet's concerns. "The only way to show that this is actually not a case to be worried is to have a very stringent implementation."

French Finance Minister Christine Lagarde also indicated that the rules went further than her government wanted when negotiations on the economic governance package started eight months ago.

"Little did we know that we would end up with this," said Lagarde. "I think this is a triumph for the European spirit."

EU governments had already reached preliminary agreement on the rules in October, but were harshly criticized for watering down proposals made earlier by the European Commission.

Even though concerns among some governments' concerns appeared to be quelled by Tuesday's agreement, the deal was unlikely to be the final version of the rules, since the European Parliament has already made more than 2,000 amendments to the initial proposals.

Separately, German Finance Minister Wolfgang Schaeuble sought to quell concerns that Saturday's deal to increase the lending capacity of the eurozone's bailout fund to the euro440 billion it initially promised could still run into trouble.

Finance ministers failed to decide at their meetings Monday and Tuesday how exactly the euro440 billion would be reached.

Finland, just weeks ahead of a national election, was reluctant to commit to an increase in funding now, Schaeuble said, but indicated the delay was largely tactical. He also played down fears that the increase could be blocked by the German parliament, saying they were "premature observations."

Schaeuble also reiterated demands that Ireland raise its rock-bottom corporate tax rate in return for lower interest rates on its bailout, and added that the low tax rate was one of the reasons the country found itself unable to pay for its massive bank bailouts on its own.


Greg Keller and Rachel Levin contributed to this report.