Bundesbank: Euro Reform Could Be Costly

Proposed changes to the Stability and Growth Pact, a tight set of fiscal rules for euro-zone countries, could prove costly both to the euro's credibility and to economic growth in the region, Bundesbank chief Axel Weber said on Friday. Referring to proposals drawn up by EU finance ministers to "strengthen, clarify and better implement" the stability pact, Weber told a banking congress in Frankfurt that the changes "would not yield any major benefits. It could, however, come at a great cost." Under the terms of the 1997 pact, euro-zone countries are not allowed to run up public deficits in excess of 3.0 percent of gross domestic product (GDP). But with a growing number of states falling foul of that rule, some governments, including Berlin and Paris, have embarked on a campaign to soften the pact and show greater leniency to so-called budgetary sinners. Weber, who as German central bank chief sits on the European Central Bank's policy-setting governing council, insisted that the pact as it stood "suffers from neither a lack of economic reasoning nor a lack of clarity."