ECB's Issing defends stability pact limit

European Central Bank chief economist Mr Otmar Issing said he sees no need for the controversial 3 per cent budget deficit limit…

European Central Bank chief economist Mr Otmar Issing said he sees no need for the controversial 3 per cent budget deficit limit in the EU's stability and growth pact to be changed.

However, in an article for the Frankfurter Allgemeine Zeitung, Mr Issing conceded the rules that forbid governments having annual budget deficits over 3 per cent of GDP and public debt at 60 per cent in the pact were political decisions.

"These limits are expressions of a political decision and can't be justified scientifically," Mr Issing said.

But he said clear rules are needed to make sure the pact is maintained properly by euro zone states and that the 3 per cent limit suits the current economic framework in the euro zone.

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"Of course other values would be conceivable, but these would still meet exactly the same criticism of being arbitrar," he said.

"The pact is used as a scapegoat to divert attention from the failures of national fiscal policy. . . . It is not the cause of current problems in budgetary policy," Mr Issingwrote.

The stability and growth pact has come in for criticism recently. EU Commission president Mr Romano Prodi described it as "stupid", and France and Italy have called for changes to its rules.

AFP